5 tips on linked transactions

To avoid tax fraud in certain commercial transactions and of other types, Spanish regulations regulate the concept of related-party transactions. In this article, we give you five tips, so you know what they are and how they should be declared.

What are linked operations?

Related transactions are regulated in Article 18 of the Corporate Tax Law. They can be defined as those operations carried out between people or entities between which there is a relationship.

When is a link considered to exist?

According to the Corporate Tax Law , it is considered that there is a link in the following cases:

• Between an entity and its partners or participants.
• Between an entity and its partners or administrators.
• Between an entity and the spouses or people linked by a direct or collateral line of kinship by consanguinity or affinity up to the third degree of the partners or participants, directors or administrators.
• Between two entities that belong to the same group.
• Between an entity and the directors or administrators of another entity when the two entities belong to the same group.
• Between one entity and another, the first indirectly participates in at least 25% of the share capital or own funds.
• Between two entities in which the same partners, participants, their spouses, or relatives participate, directly or indirectly, in at least 25% of the share capital or own funds.
• Between an entity that resides in Spain and its permanent establishments abroad.

What are transfer prices or transfer pricing?

The law establishes that transactions between related entities or persons will be valued according to the market price. This means that the price of transactions carried out between related persons or entities cannot be altered upwards. Or downward, as a consequence of the existence of the link.

What is the market price?

Another fundamental concept for linked operations is the market price. It is considered to be the price that the parties to a transaction would establish under conditions in which free competition is respected.

What model must be presented, how and within what period?

To declare linked operations you must submit the Form 232 or Informative declaration of related-party transactions and of operations and situations related to countries or territories considered tax havens.

Form 232 is presented electronically and the submission period is from November 1 to 30 of each year.

As a consequence of all of the above, the regulation of related-party transactions has the following effects:

• Accounting, since accounting regulations and international standards relating to transfer pricing apply.
• Fiscals, since the treasury must be informed of certain operations linked to Form 232.
• Economic, since each operation must be exhaustively analyzed to see if there is a connection with those regulated in the law.