Spanish court rejects intra-group services Appeal

The Spanish National Court has thrown out an appeal against tax authority assessments, branding the taxpayer's documentation as 'scant' and wholly inadequate. The decision is important because it provides guidance on the scope of documentation required in Spain to prove that intra-company services meet the arm's-length standard.
At present, Spain does not have transfer pricing rules which codify precisely the documentary requirements to support related-party transactions within groups.
The tax authorities are composing rules, which are expected to follow the model of the master file advocated by the EU Joint Transfer Pricing Forum. France published new draft rules earlier this month which would bring French policy in line with the master file.
The ruling came at the end of an appeal (Appeal No. 623/2004) by the Spanish subsidiary of a French multinational. The Spanish tax authority had issued assessments for the years 1996 to 1999. It increased the tax payable to include services and allocated costs associated with related-party transactions between companies of the group.
The subsidiary argued that it should benefit from a tax deduction because the transaction was conducted at arm's length. The court denied a deduction for the management fees because the company failed to produce evidence which was sufficiently robust.
The court said that during the inspection period, the taxpayer provided scant documentation on the actual services rendered. It did not even file pleadings against the proposed tax assessment, preferring to contest it directly before the Central Economic-Administrative Tribunal.(...)