International transfer pricing developments: Spain

Towards substance over form & business restructuring

There have been a few recently interesting court cases that prove that Spanish tax inspectors are focused in understanding the real underlying economic substance of the transactions and the business operations requesting during the tax audits evidence enough to support it.

One of these court cases confirmed that a series of interconnected IC transactions consisting of an acquisition of shares and some related financial traffic had to be disregarded for tax purposes because the transaction was so detrimental for the Spanish party that an unrelated independent entity would have never joined that series of transactions.

The key point is that the disregard was based in Article 9 of the double tax treaty (related arm’s-length transactions) instead of following a heavy and burdensome tax fraud process and it had a significant...