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Transfer pricing assessed on imports by customs authorities is binding for corporate income tax purposes
The recent publication of the judgment by the Supreme Court, dated 30 November 2009, concerning market values in related-party transactions details an adjustment to the case law and contains a clarification of certain limitations applicable to the authorities.
According to the Spanish corporate income tax legislation, the transactions that an entity performs with other related entities must be valued at market price, and such valuation must be based on one of the methods established by the domestic legislation (which match those established by the OECD).
The facts addressed by the judgment can be summed up in the existence of a company resident in Spain, which engages in various transactions involving the sale and purchase of products with non-resident related companies. Spain examines the Spanish Supreme Court's recent judgement.
With respect to the above transactions, the authorities had considered in the course of a corporate income tax inspection that the price agreed upon for these products was not a market price. They therefore proposed an adjustment. However, the value assigned to the transactions, for corporate income tax purposes, was different from that which the authorities themselves had assigned to the same transactions when calculating the import duties. This was due to the fact that they had applied different valuation methods in both cases.
In this respect, the Court considers that, applying the basic legal principle of estoppel (applicable to everyone, including the authorities), the valuation method used in both cases should have been the same and should have led to the same result.
While in the international context there does not seem to be a consensus regarding consistency in transfer pricing valuation for both tax and customs duty purposes, Spanish courts have ruled that the authorities are bound by their own assessment for one or the other tax. Consequently, the valuation assessed by the tax authorities for customs duties purposes may be considered a "safe harbour" for corporate income tax purposes in Spain.
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