The establishment of groups of companies through holding structures or any other type of facility, whether they are international groups or groups of resident companies, frequently raises doubts regarding what price to invoice from one company to another, and what transfer prices to apply. Commercial transactions between companies must respect the principle of free and full competition, independently to being a group or related company selling goods or services at a lower price than the market price.
Which transfer prices to apply on holding company structures
Performing incorrect transactions may well lead to adjustments by the Administration in this regard; transfer prices of these operations should be established accurately, in documentary terms. To this end, the Spanish Tax Agency issued a notification dated February 21st, 2021 in order to clarify issues related to these transfer prices. It refers to both, the OECD guidelines for transfer prices and the report on the Use of Comparability in the EU.
The notification discloses the processes for a correct determination of the values or ranges of values that would comply with the arm's length principle. It makes special emphasis on the use of statistical tools and indicators where appropriate. This is important as it describes the methods used by the administration to correctly determine these transfer prices.
This way, the company knows in advance what value or range of values the administration can give it for these transactions in the event of verification. Knowing the "enemy's" cards certainly makes it easier to play the game. Specifically and literally, the notification states:
"In short, if the conditions of the related transaction are in range, the administration will not regularise and if they are not, then the transaction will have to be adjusted".
Groups of companies or multinational entities
It is very significant that the Tax Agency ends the notification with an example between a resident company and its non-resident related entity. This problem is explicitly relevant for groups of companies or multinational entities. Once the valuation method for related-party transactions has been chosen, which may be common to many countries, the comparability chosen do not necessarily have to be the same or even similar. For example, the operating profits on sales of a sector in one country may be very different from those of the same sector in another.
In fact, this is where the taxpayer will have to demonstrate that both, its method and its chosen values are duly justified, so that the existence of compliance-type documents before carrying out the operations, duly justified and documented, becomes particularly relevant to avoid subsequent adjustments.