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The documentary set in the management of transfer pricing in Italy and Spain

italia spagna
ferrari & associati

by d.guarnierirodriguez@studioferrari.com

Policies regarding transfer pricing are undoubtedly fundamental elements in strategies and coordination in multinational groups. The attention of the various States and the OECD is focused on these operations. These are either transactions between institutions domiciled in different States, the value of which does not reflect market dynamics, or they have been carried out following very different criteria from those that would have been applied between independent entities operating under a free competition regime.

The operational instruments and techniques of comparison between intercompany transactions and the same operations between independent entities constitute the basis on which to prepare the documentary set (made up of the master file and the country file) in order to benefit from the so-called penalty protection, that is, the non-application of the sanctions imposed by the rectification of transfer prices. The documentary set is also an effective defensive instrument both in the administrative and judicial phases. Moreover, in the current situation, in which the pandemic crisis due to COVID-19 has led to strong uncertainty, it seems necessary that companies revalue the transfer pricing policy and that, at the same time, the Tax Agency can assess the results with implications appropriate to the time in which the information has been assumed.


It is a fact that the liberalization of markets has pushed business activities towards internationalization. In this context, multinational business groups have carried out strategic and coordination evaluations in relation to the possibility of locating certain branches in States with different tax jurisdictions. The intercompany pricing policy is not only a way to obtain tax benefits. This aspect should be seen more as an effect than as a cause. In fact, these strategies should arise from logics of an economic and business nature, and not as a mere instrument of tax evasion. This misalignment with respect to the arm’s length principle is considered pathological, as soon as the economic interests of two or more entities collapse, which in a competitive context would be natural.

The legislators of all the States have studied the evolution of this phenomenon with interest to establish the criteria to determine transfer prices. However, this has led to a general trend towards widening the scope of these criteria. In this way, the administrative duties in charge of the companies are complicated and, therefore, the normative interpretations by the Fiscal Agency increase disproportionately.

In this context, the role of institutions such as the OECD (Model of Double Taxation Agreements and Guidelines on Transfer Prices, for multinational companies and the Tax Administrations of the different States), the Council of the European Union (Code of Conduct on transfer pricing documentation for European Union companies) and the Joint Transfer Pricing Forum, which has been in charge of increasing the objectivity and transparency of the economic analysis to determine transfer pricing at the European level.


In Spain, as in other OECD member countries, transactions between associated companies are expected to take place in compliance with the principle of free competition. To assess whether this principle has been respected, the result of the operation that has been developed between companies belonging to the same group must be considered and compared with the equivalent operation if it had taken place between companies independent of each other. If there are no differences between the two, it can be stated that the intra-group transaction has respected the principle of free competition.

What seems fundamental, then, is to find the best comparability method, that is, the one that best suits the contingencies under analysis. To establish an adequate degree of comparability, it is necessary to analyse some contingent factors, such as the characteristics of the goods or services that have entered the transaction, the contractual conditions that have been agreed, and the market in which the two companies carry out their own activity, in addition to the commercial strategies assumed by each one.

This last point is the one that generates the most controversies regarding transfer pricing between taxpayers and the tax administrations of the various States. However, it is not possible to neglect another aspect that raises many controversies, such as the considerations inherent to the concept of control.

It will be interesting to see how the economic and financial changes will unfold with respect to the emergency generated by the pandemic that we have faced in recent months. It is expected, in fact, that there will be repercussions on market trends, and that the methods of evaluating transfer prices, in addition to fiscal policies, will have to be reconsidered in light of the extraordinary circumstances that the world is facing. facing up. Tax administrations will have to consider the conditions of uncertainty that will weigh on transfer pricing policies. It is expected that on this issue there will be a direct intervention by the OECD, which clearly defines common actions that avoid misalignment between the various States.


The Spanish Ley 27/2014, de 27 de noviembre, del Impuesto sobre Sociedades, establishes that all operations carried out between persons and related entities must be carried out at normal market value. This provision emphasizes that the regulations apply not only to Spanish companies, but also to their partners, administrators and other subjects related to it.

In the first place, it would be necessary to identify when there is such a degree of connection by which the documentary support is available. The Sentence of the Superior Court of Justice of Madrid n. 523/2018 provides the following answer, so they are presumed linked:

  1. An entity and its partners or participants whose participation is equal to or greater than 25%;
  2. An entity and its directors or administrators, except in what corresponds to the remuneration for the exercise of their functions;
  3. An entity and the spouses or persons united by kinship relationships, in direct or collateral line, by consanguinity or affinity up to the third degree of the partners or participants, directors or administrators;
  4. Two entities that belong to a group;
  5. An entity and the directors or administrators of another entity, when both entities belong to a group;
  6. An entity and another entity indirectly owned by the former in, at least, 25% percent of the capital stock or equity;
  7. Two entities in which the same partners, participants or their spouses, or people united by kinship relations, in direct or collateral line, by consanguinity or affinity up to the third degree, participate, directly or indirectly in, at least, the 25% of the capital stock or equity;
  8. An entity resident in Spanish territory and its permanent establishments abroad.

The companies that must prepare the documentary set are those that:

a) Carry out transactions between related entities that exceed the amount of €250.000,00 in the tax period with the same person or related entity;

b) Whatever the size of the company;

c) Regardless of the internal or international nature of the operation.

Documentation is not required, both for the group and for the party obliged to:

  • a) Operations carried out between entities of the same group that are taxed in tax consolidation;
  • b) Those carried out with its members by Economic Interest Groups and Temporary Unions of companies;
  • c) Those made in the field of public offers for sale or public offers for the acquisition of securities.

Spanish regulations on transfer pricing are also based on the Ley de Impuesto sobre Sociedades, issued in 2015 by the Real Decreto 634/2015, which establishes the characteristics of the documentary support and who is obliged to prepare it.

Said documentary support is mainly made up of two documentation complexes: the master file, whose content is related to the multinational group in its complex, and the country file, which focuses on data from intra-group operations that the local company has carried out. In addition to these, for those larger multinational groups, the writing of Country by Country Reporting is required.

There are also hypotheses under which the group can close prior agreements with the tax administration to set the transfer price at the normal market price jointly decreed between the taxpayer and the tax administration.

There is no connection of the taxpayer to justify the related operations through the documentary set, if at least one of the following requirements is presented:

  • If the operations are carried out by two companies belonging to the same tax consolidation group;
  • If the operations are carried out by two companies belonging to the same tax consolidation group by economic interest groups, joint venturesand regional industrial development companies;
  • If the operations have been carried out in the field of public offers for the sale or acquisition of securities;
  • If the operations carried out with the same person or related entity do not reach a consideration greater than €250.000,00, according to the market value.

Those requirements exempt the taxpayer from the predisposition of the documentary report. There are other requirements, about a dimensional nature, that establish what type of documentation they must prepare:

  • If the net amount of the group’s turnover does not reach 45 million euros, only simplified documentation will be required;
  • If the net amount of the group’s turnover maintains a value between 45 million and 750 million euros, it will be necessary to prepare the country file and the master file;
  • If the net amount of the group’s turnover in the 12 months prior to the tax period is at least 750 million euros, country-by-country reporting will be required.


In Italy, the obligations that exist in Spain do not apply. In fact, the arrangement of the documentary set is not mandatory, but voluntary. It should be noted, however, that said voluntary character appears conditioned by the great advantage provided by having the appropriate documentation during a control or inspection, since if said documentation is capable of motivating the conformity of the price applied, the taxpayer is exempted from possible sanctions for the discrepancy with respect to the “normal” price detected by the financial administration.

With respect to Spanish regulations, in addition, the criteria with which the appropriate documentation is established is different . No dimensional criteria apply, in fact. A difference is made between the role covered by the specific entity within the multinational group.

Therefore, a differentiation will be made between:

  • Holding entities, that is, those that are not controlled by other entities, regardless of their domicile, and that control (even through a country subholding) one or more entities not resident in Italy;
  • Subhoding entities, that is, those entities that are controlled by an entity regardless of where it is resident, and that simultaneously control one or more entities not resident in Italy;
  • Controlled entities, which do not control any non-resident entity and are at the same time controlled by an entity regardless of where they are domiciled.

Holding entity documentation is considered suitable if it contains both the master file and the country file. The same is true for country subholdings, but the master file could be the same presented by the holding company, so there is not the need to prepare an autonomous master file. For controlled entities it is sufficient to have the country file.

Stable organizations follow the same rules just mentioned, depending on their holding, country subholding or well controlled rating.

The only dimensional criterion in force in the Italian regulations on transfer pricing documentation is inherent to SMEs, which are considered such if the turnover does not reach 50 million euros, and if they do not control entities that do not control others that do not respect the criteria just mentioned. For these entities, it is not necessary to update the documentation in the following two years in which it has been submitted, as long as the comparability analysis has been carried out using publicly available data and if no changes have been made to the characteristics of the goods or services traded, the functions performed, the risks assumed and the instrumental goods used, in addition to the economic and contractual conditions.


The documentation required in the master file that contains the information related to the operations carried out between the members of the group, is the following:

  • Information regarding the structure and organization of the group:
  • o          Organizational structure;
  • o          Legal structure;
  • o          Operational structure;
  • o          Identification of the group entities.
  • Information regarding the group’s activities:
  • o          Main activities;
  • o          Description of the main geographic markets;
  • o          Main sources of profits and value chain of goods and services that represent, at least, 10% of the net amount of the group’s turnover;
  • o          General description of functions, risks and assets;
  • o          Transfer pricing policy;
  • o          Cost sharing agreements and relevant service provision contracts;
  • o          Reorganization and acquisition or transfer of assets operations.
  • Information regarding the intangible assets of the group:
  • o          General description of the global strategy for the development, ownership and exploitation of intangibles;
  • o          List of intangible assets and their holders;
  • o          Amount of the consideration;
  • o          List of agreements related to intangibles;
  • o          General description of any relevant transfer of intangible assets.
  • Information regarding the group’s financial activity:
  • o          General description of the Group’s financing strategy;
  • o          Identification of the related entities involved in the financing of the Group;
  • o          Transfer pricing policy in financial operations.
  • Financial and fiscal situation of the group:
  • o          Annual consolidated financial statements of the group (when required);
  • o          List and brief description of the previous valuation agreements.


The country file, that is, the file that contains the specific documentation made by the local taxpayer, it is made up of the following data:

  • Taxpayer information:
  • o          Management structure, organization chart and recipient entities of management reports;
  • o          Activities and business strategy;
  • o          Restructuring and assignments or transfers of intangible assets;
  • o          Main competitors.
  • Information on related-party transactions:
  • o          Description of the nature, characteristics and amount of the related-party transactions;
  • o          Identification of the taxpayer and related entities;
  • o          Comparability and functional analysis of operations;
  • o          Explanation of the choice of the valuation method;
  • o          Eventual criteria for the distribution of expenses in the provision of services;
  • o          Copy of valid previous valuation agreements.
  • Economic-financial information of the taxpayer:
  • o          Annual financial statements;
  • o          Reconciliation between the data used in the application of the transfer pricing methods and the financial statements;
  • o          Financial data of the comparables used.


This is the documentation required for those groups that have not invoiced more than 45 million euros in the year prior to the tax period, and it must contain:

  • Description of the nature, characteristics and amount of related-party transactions;
  • Name and surname or company name, tax address and tax identification number of the taxpayer and of the persons or entities linked with whom the operation is carried out;
  • Identification of the valuation method used;
  • Comparables obtained and value or ranges of values derived from the valuation method used.


This last file must include, in relation to the tax period of the dominant entity, for each country or jurisdiction:

  • Gross income of the group;
  • Results before Corporation Tax;
  • Corporation Tax paid, including withholding tax;
  • Corporate taxes accrued, including withholdings;
  • Amount of the capital figure;
  • Average staff;
  • Tangible assets and real estate investments;
  • List of resident entities, permanent establishments and activities carried out;
  • Other information.

Therefore, it can be assessed, based on what has been said, the need to have documentation based on supranational related operations constitutes the first line of defence against the risk of counter valuation by the Tax Agency. However, as it is very difficult to agree on valuations with the same Agency, a viable solution in many cases is that of previous valuation agreements, with which the transfer price considered normal is agreed with the tax authority.

The request for a PVA by the taxpayer to the Tax Administration is voluntary, is previous to carrying out the operations and may be valid during the four tax periods following the one in which the current tax period and the previous one are approved. If the deadline for filing the Corporate Tax return has not ended.

The taxpayer must propose to the tax administration a market value in its related transactions and it has a resolution period to approve or reject the proposed proposal.

It is quite common to take for granted that the current legal configuration of PVAs makes them an interesting instrument only for large companies. Only these can invest financial, material and personal resources for their request and follow-up or to have the help of an external independent professional and expert in the field.

In addition, there is a perception that these types of companies, with a significant volume of related-party transactions, are those that have a higher potential risk of being subject to transfer pricing inspection, as appears to be inferred from certain pronouncements of the Tax Administration, who advocate focusing their control and inspection efforts on groups with an international component.


Transfer pricing appears to be quite a complicated issue, as has been noted throughout this article. In fact, the European Union has attempted to draw up a regulation that, without limiting free market competition, can eliminate tax abuses by multinational groups. The perhaps excessive discretion of the Tax Agency in said operations, however, marks the way forward in the evolution of said regulations.