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Transfer pricing: what do they analyze and when do they apply?


transfer pricing

If two companies get involved in the sale and purchase of a good in a free market, they will agree on the price according to their interests, and that price will be the market value. But if these two organizations are linked, there may be a special interest that may affect prices. In those cases we talk about transfer pricing. In this post we will tell you what they are, what they analyze and in which cases transfer pricing applies.


What is transfer pricing?

In the business world, it is common for groups of companies or companies to be created so that transactions are made among each organization that carries out a certain activity, or transactions are carried out between the administrators and partners with these organizations.

In these cases, what is known as related party transactions occur, for example, transactions in which there is a commercial or family relationship that may imply that the prices are agreed and different from the market prices. In order to prevent this from happening, the concept of transfer pricing is regulated in the corporate income tax law and in the regulations.

Therefore, transfer prices are those that are agreed in a transaction between individuals or entities that have a link or relationship.

How do they determine whether a link or a relationship between individuals or legal entities exist?

In each country the laws regulate differently what is considered to be a relationship between companies or individuals. In Spain, from a tax point of view, a link is considered to exist in the following cases (which are regulated in article 18 of the corporate income tax law):

  • A corporation and shareholders with a shareholding of at least 25%.
  • A corporation and its administrators, whether de jure or de facto.
  • A company and the spouses and relatives up to the second degree of the shareholders and administrators.
  • Two companies that are part of the same group.
  • A company and the administrators of another company belonging to the same group.
  • A company and another company in which it has an indirect shareholding of at least 25%.
  • Two companies owned at least 25% by the same partners, their spouses or relatives up to the second degree.
  • A Spanish company and its permanent establishment abroad.
  • A non-resident company and its permanent establishment in Spain.


When a transaction is carried out between the individuals or entities detailed above, it is important to verify that the sale has been made at a market price, so that it can be proved before the Tax Agency in order to avoid corrections or regularizations if it considers that there are discrepancies between the value of the transaction and the market prices.

What obligations do companies have in relation to the application of transfer pricing?

In the event of a transaction between the entities and individuals detailed in the previous section, certain obligations arise for the taxpayers, which are the following:

  • Information obligations. They are subdivided into two:
    • Country-by-country information (Form 231). Related entities or individuals are required to provide country-by-country information in accordance with the provisions of article 14 of the corporate income tax regulations, which expressly states that country-by-country information shall be required from entities that are the controlling entities of a group, when the turnover of all the individuals or entities that form part of the group is at least 750 million euros.
    • Information on related party transactions (form 232). In the event that there are related party transactions, the companies or individuals involved must file form 232 (informative declaration of related party transactions and of transactions and situations related to countries or territories classified as tax havens) to inform the Tax Authorities.


  • Documentation obligations. The corporate income tax law requires that transactions carried out between related individuals or entities are valued based on a market value. Market value is considered to be the value that would have been agreed upon by independent individuals or entities under conditions of free competition. The documents that must be made available to the tax authorities in order to prove that the transaction has been made on the basis of a market value is subdivided into:
    • Documentation relating to the structure, organization, activities, intangible assets, financial and tax situation of the group, among others. This documentation is mandatory for groups with a net turnover of 45 million euros or more.
    • Taxpayer’s documentation: taxpayer’s information, information on related party transactions and taxpayer’s economic-financial information, in the case of related individuals or entities whose net turnover is equal to or greater than 45 million euros. If the net turnover is lower, simplified documentation will be provided.

As you have seen, transfer pricing regulations involve a series of formal obligations and a thorough knowledge of tax legislation. For this reason, it is essential that, if you are going to carry out an operation of this type, you consult with a tax expert who will advise you in all the processing and information to the Tax Authorities.

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