SPAIN Law and Practice Contributed by: Raúl Salas and Elena Ferrer-Sama, RocaJunyent
• the rules preventing hybrid mismatches. The Spanish Tax Agency has long applied the GAAR to recharacterise transactions in accordance with the underlying substance or to disregard operations when they are believed to lack genuine commercial reasons other than tax reasons. Spanish courts have also applied an “economic substance” or “business purpose” (qualification principle) doctrine to disregard transactions that have no appreciable effect on the taxpayer other than the reduction of income taxes. The application of the GAAR is commonly litigated, given that its application requires many subjective considerations, and the Spanish Tax Agency’s posi - tion is not always followed by courts. Furthermore, fol - lowing the BEPS Action 6 Report and the ratification of the MLI, affected Spanish DTAs would incorporate the Principal Purpose Test (PPT) clause. There is no routine tax audit cycle; however, very large groups are usually audited by Spanish tax authorities every four years (statute of limitation period). Account - ing-wise, companies that are required to have their accounts audited by a statutory auditor must annually provide the auditors with all the information necessary to carry out the aforementioned audit. An audit of accounts consists of an exhaustive review of the financial statements of a company, with the aim of accrediting the reasonableness of the veracity and reliability of its content to third parties. According to the provisions of the Spanish Law on Corporations, the obligation to audit the accounts applies only to a company that exceeds – for two consecutive years at year-end – two of the following three parameters: • where the total amount of asset items exceeds EUR2.85 million; • where the total amount of its annual turnover exceeds EUR5.7 million; or • where the company has a workforce of more than 50 employees. 8. Audit Cycles 8.1 Regular Routine Audit Cycle
Currently there is a bill before Parliament that pro - poses to increase those limits to the following: • where the total amount of asset items exceeds EUR3.57 million; • where the total amount of its annual turnover exceeds EUR7.12 million; or • where the company has a workforce of more than 50 employees. 9. BEPS 9.1 Adoption of BEPS Recommendations The main recommendations resulting from the BEPS Actions, developed by the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, have been already implemented. In fact, Spain is one of those countries where OECD conventions and guidelines are directly applicable when compatible with domestic legisla - tion – given that it declares that Spanish CIT must be interpreted based on OECD principles. The main BEPS principles have been implemented as follows. • BEPS Action 2 – introducing ATAD II regulations. • BEPS Action 3 – the Spanish CFC regime was amended in accordance with BEPS principles. • BEPS Action 4 – Spain had already implemented interest-stripping rules that limit allowed interests (in excess of EUR1 million) to 30% of EBITDA (EUR1 million threshold). • BEPS Action 5 – Spain has strengthened mecha - nisms for exchanging advance pricing agreements and advance tax rulings. • BEPS Action 6 – furthermore, DTAs concluded after BEPS (eg, with China and Japan) already included provisions to prevent the abusive use of DTAs. Finally, Spain accepting the MLI would affect most DTAs in this sense. • BEPS Action 7 – Spain’s approach to PEs has been traditionally ahead of even the more aggres - sive OECD and EU countries. Hence, a BEPS-style approach towards PEs had been applied in Spain, even before BEPS. Furthermore, as a result of the MLI, Spanish DTAs are even more aligned with BEPS principles. • BEPS Actions 8, 9 and 10 – before the BEPS initia - tive, Spain had already declared directly applicable
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