The Spanish Supreme Court criterion on the penalties applying due to the formal obligations noncompliance in related party transactions

In a recent Court Resolution of 15 Oct. 2018, the Spanish Supreme Court holds the view that, when the specific Corporation tax penalty system does not apply because the taxpayer is exempt from such documentation, the general penalty system ruled out in the General Tax Law applies.

Penalties applying for the noncompliance of the documentation requirements that taxpayers are subject to, in order to substantiate the agreed consideration in related party transactions, are specifically ruled in the Spanish Corporation tax Law.

In a recent Court Resolution of 15 Oct. 2018, the Spanish Supreme Court holds the view that, when the specific Corporation tax penalty system does not apply because the taxpayer is exempt from such documentation, the general penalty system ruled out in the General Tax Law applies. Such system provides a minimum penalty of 50% of the unpaid tax, when the infringement consists in not paying the tax quote deriving from the correct tax liquidation, within the legal term.

✔ The specific penalty system of the Spanish Corporation tax Law sets that, in the event that the documentation requirement has correctly been complied with and the taxpayer has declared according to the value derived from such documentation but the Spanish tax authorities adjust the valuation contained therein, the underpaid tax quote because of such adjustment is not considered as a tax infringement and cannot, therefore, be penalised.

✔ In its Court resolution of Oct. 15, 2018, the Spanish Supreme Court determines that, when there is an obligation to value related party transactions at arm’s length, nothing prevents the Spanish tax authorities, if the normal market value assigned to a transaction is incorrect, from adjusting the valuation and imposing a penalty to the taxpayer.

In the case analysed by the Supreme Court, the documentation requirements do not apply since the consideration of the transactions undertaken in the fiscal year does not exceed 250,000.00 € of market value. Consequently, what is at stake is whether the taxpayer can be penalised for the underpaid tax, when it was not obliged to comply with the documentation requirements.

✔ The Supreme Court concludes that the exemption from liability foreseen in the Spanish Corporation tax Law only applies when the following conditions are met:

  • The taxpayer has complied with the documentation requirements.
  • The declared value coincides with the one included in the related party transaction documentation.
  • The normal market value has been adjusted by the Spanish tax administration.

In the rest of the cases; that is to say, when the specific Corporate tax Law penalty system does not apply because the taxpayer is not obliged to the documentation requirements, then the general penalty system ruled out in the General tax law is applicable, what is more harmful for the taxpayer.


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