Spain: General Tax Control Plan for 2021
On 1 February 2021, the Spanish Tax and Customs Annual Plan for 2021 was published in the Official Gazette, in the context of significant tax reforms including the latest implementation of the Digital Services Tax and the Financial Transactions Tax.
Strengthening the use of new technologies is the main objective of the Plan for 2021 boosting the use of innovative tools and improving the existing tax transparency and exchange of information mechanisms.
Transfer pricing compliance, the arm’s length principle, APAs and MAPs are cornerstones of the Plan, evidencing that these topics will be key focus areas for the Spanish tax authorities in 2021.
The plan has five main pillars:
- Information and assistance activities
- Prevention of non-compliance. Encouragement of voluntary compliance and fraud prevention
- Investigation and verification of tax and customs fraud
- Fraud control during collection of taxes
- Collaboration between State and Local tax authorities
Through the implementation of new technologies and the Digital Integrated Assistance Administrations (“Administraciones de Asistencia Digital Integral” -ADIs-), the Plan aims to enhance the diversity and quality of information and assistance services rendered to taxpayers. The objective is to try to minimize errors from taxpayers and to provide more user-friendly platforms for compliance matters.
As an example, some of the foreseen measures include the use of big data for ease of filling of the Personal Income Tax forms, virtual assistants for minor queries, virtual calculators for Value Added Tax purposes and the improvement of the available online census.
The Spanish tax authorities will continue to work on spotting inactive companies in order to proceed with the closure of such entities and the revocation of relevant Tax Identification Numbers, which will impact in a tighter control on those active companies regarding their compliance matters.
The Spanish tax authorities will also pursue a more efficient and complete exchange of information both within the European Union and with other countries, such as the United States, to improve FATCA compliance.
Furthermore, the Spanish tax authorities intend to promote bilateral and multilateral Advance Pricing Agreements (APAs), as an effort to provide tax certainty to taxpayers and reduce tax audit costs.
The increase of Mutual Agreement Procedures (MAPs) is another key objective of the Spanish tax authorities, who intend to interact with foreign authorities to resolve international transfer pricing disputes more than ever.
Through the use of technology, the Spanish tax authorities aim to improve the selection criteria of taxpayers who undergo tax audits. Some of these measures include big data tools to analyze tax residency matters, automated risk assessment in regards to transfer pricing policies and information exchange programs to maximize DAC6 data.
The Spanish tax authorities emphasize the relevance of multilateral controls within the European Union, in particular, regarding Joint Audits. In addition, a broader participation to the International Compliance Assurance Program is foreseen.
The Plan highlights relevant tax affairs which will be thoroughly verified at tax audits during 2021. The main aspects which will be investigated and verified in respect to multinationals, large companies and tax groups are: intragroup financing, payment of interest and distribution of dividends, understanding that the Spanish tax authorities will take into consideration the latest Danish cases on beneficial ownership.
Furthermore, in terms of transfer pricing, within the EU, multilateral controls will be significant in order to investigate the transfer and royalty payment for the use of intangible assets. Documentation compliance will be a further key objective. In this regard, the Spanish tax authorities will specially focus on the functional analysis as well as the attribution of functions, assets and risks of the entities. The relevance of low risk profile entities is also highlighted, both for manufacturing and distribution entities, and valuation methods applied and the adequacy of comparability criteria will be reviewed.
Permanent establishments will be subject to investigation in order to verify the correct attribution of profits, including financial profits, in order to avoid erosion of taxable base in Spain.
Lastly, the Spanish tax authorities will also tackle interposed corporate structures that favor the opacity of income and assets, not only regarding private wealth planning but also standardized corporate structures which try to benefit from low-taxation jurisdictions by shifting profits.
The digital economy, highlighting cryptocurrencies, DAC7 and the Digital Services Tax are also considered by the Spanish tax authorities with the intention to better analyze the digital economy during 2021.
The Plan for 2021 includes measures such as the tracking of payments made to the Spanish tax authorities, cooperation between administration and the control of debts in order to avoid fraud in the collection of taxes.
Given some taxes are managed by Local tax authorities instead of by the State, the plan intends to strengthen the collaboration between tax authorities, encouraging frequent exchange of information obtained from tax filings and tax audits with the intention of further monitoring taxpayers.
Key takeaway for multinationals and large entities operating in Spain
The Plan for 2021 is ambitious and intends to bring new technologies to the table in order to, not only ease compliance for taxpayers but, most importantly, to allow the Spanish tax authorities gain control over the scope of the information available.
Multinationals and large companies operating in Spain should be prepared to be subject to tax audits focused on intragroup financing, interest payments and dividends distribution outside of Spain, as well as transfer pricing matters such as the transfer and royalty payment for the use of intangible assets, documentation compliance and risk characterization of entities. Permanent establishments based in Spain will be also investigated in order to verify appropriate profit allocation.
In this context, APAs and MAPs are foreseen to be key during 2021. Entities should try to be proactive and take advantage of this situation in order to gain tax certainty and mitigate tax exposure.
