Code of Best Tax Practices

Conclusions regarding the development and follow-up of the implementation of the Code of Good Tax Practice within the framework of corporate relations between the Tax Agency and Companies, approved in the plenary session of 2/11/2015

Introduction

The purpose of this conclusions document is to advance the development of the cooperative relationship model between the State Tax Administration Agency (AEAT) and the companies covered by the Code of Good Tax Practices (CBPT) through the voluntary assumption of certain commitments and attitudes by both parties that promote improvements in the effective application of the postulates and recommendations established in the Code.

The experience of applying the Code has been, so far, useful and fruitful and has constituted an effective instrument for improving the relationship between the AEAT and the companies adhering to it, aimed at compliance with tax obligations by providing it with a greater degree of predictability and legal certainty.

However, it is considered that actions should be taken to produce significant and effective progress in the implementation and development of the Code.

These actions, of a voluntary nature, are especially aimed at providing greater virtuality and effectiveness to the application of the Code on two levels: the one specific to the bilateral relationship between the AEAT and companies; and the one that affects external assessment and reputational improvement, undoubtedly associated with better knowledge by society of the assumption and application of the commitments and recommendations contained in the Code.

These conclusions, which are included as an annex to the Code itself, focus on the aspects explained below and derive from the commitments and recommendations set out therein.

Conclusions regarding the development and monitoring of the application of the Code of Good Tax Practices

1. Monitoring and assessment of compliance behaviors with the Code

This first part of the annex aims at the following actions:

1. Create a form or synthetic catalogue of conduct that allows verification of effective compliance with the Code by the AEAT and by companies.

2. Determine practices for ongoing monitoring and evaluation of compliance with the Code's recommendations during the development and completion of tax application procedures.

3. Define practices for handling cases of compliance and non-compliance with the Code's recommendations in tax application procedures.

A) Catalogue of conduct to verify effective compliance with the Code

It is unquestionable that both the AEAT and the companies that have assumed the CBPT , must follow the recommendations contained in the Code since they have voluntarily adhered to it.

In this regard, it is considered necessary to specify the practices whose observance by the parties will allow them to confirm that the Code is being adequately complied with.

A.1) Catalogue of compliance conduct by companies:

1. The entity's tax strategy, which has been set by the Board of Directors, or equivalent body, is documented and known by the company's senior management.

2. The Board of Directors, or equivalent body, has approved the operations and investments of special tax risk

3. The company's risk management policy has included measures to mitigate the identified tax risks and has established internal corporate governance rules in this area, compliance with which may be subject to verification.

4. The company has not used opaque structures for tax purposes.

5. The company has collaborated in the detection and search for solutions regarding those fraudulent tax practices that it has detected in the markets in which it operates or with which it maintains relevant relations.

6. The company has used effective systems for information and internal control of tax risks, since their design and operation are fully integrated into the general internal control systems of the business it conducts.

7. The company has provided the AEAT with accurate information on the above points.

8. The company has sought to minimize conflicts arising from the interpretation of applicable regulations.

9. At the beginning of the inspection procedure, the company has made known to the AEAT the maintenance of the commitments that entail its adherence to the content of the Code.

10. At the beginning of the inspection procedure, in order to facilitate a better understanding by the Inspection of the operation of its business, the company has proceeded to present, in the form it considers most convenient, a description of its activity with special mention of the impact of the fiscal aspects on it.

11. During the course of the inspection procedure, the company has provided the information and documentation requested by the AEAT quickly and completely under the terms agreed with it and, in any case, preferably using electronic means when possible.

A.2) Catalog of compliance conduct by the AEAT :

A.2.1) General scope of procedure:

1. The AEAT in its actions has tried to take into account administrative precedents and has applied administrative and jurisprudential criteria in its actions, in accordance with Section 2.1 of the Code. The Department Directors of the Tax Agency will inform the Permanent Steering Committee of the same of those interpretative criteria that they intend to apply in their actions or that may generate significant controversies with taxpayers and in which there is no criterion established by the General Directorate of Taxes, the Central Economic Administrative Court or the Courts of Justice.

2. The criteria applied by the AEAT have been made clear, in due time, on the website referred to in letter d) of point 3 of this annex to the CBPT . Likewise, the AEAT has tried to respond as quickly as necessary to meet the needs of the company in the approaches expressed by it in order to achieve proper cooperative compliance.

3. The AEAT has sought to reduce conflicts arising from the interpretation of the applicable regulations.

A.2.2) Scope of inspection procedure:

1. The AEAT has applied in its verification actions the administrative and jurisprudential criteria included in the communication channel indicated in the previous point (2).

2. The AEAT has limited as much as possible the object of the requirements formulated to the company during the inspection procedure.

3. The AEAT has provided the company, as soon as possible, with knowledge of the facts that could be regularized.

4. In order to help reduce litigation, the AEAT has informed the company of the factual issues relevant to the settlement and the related evidentiary activity, thereby facilitating the appropriate discussion of the same during the inspection proceedings, and establishing in each case the most appropriate formula for communication with the company to ensure this circumstance.

   In particular, it is considered good practice of the AEAT in this regard to hold meetings, prior to the disclosure of the file, between the tax managers of the company and those of the AEAT (Heads of the Teams or Units that have carried out the action and contact persons in the companies referred to in the conclusions document of the Cooperative Relations Working Group approved on 10/29/2013), in which the main contentious issues and potential tax contingencies that have arisen during the processing of the inspection procedure are brought to light, in order to avoid potential conflicts, and the taxpayer may, where appropriate, provide additional information to those responsible for the tax audit regarding the contentious issues raised.

   In the event that these meetings have not been held, the company's tax representatives may provide the contact persons referred to in the conclusions document of the Cooperative Relations Working Group approved on 29/10/2013 with any relevant information in this regard at any time prior to the disclosure of the file.

5. The AEAT has informed the taxpayer, in the hearing process prior to the signing of the inspection reports, of the facts that will influence the regularisation proposal, the essential concepts that will be regularised, the nature and amount of the foreseeable regularisation proposal that would result in accordance with the data available at that time and the other elements necessary for it to be assessed by the company.

6. The AEAT has incorporated into the motivation of the acts the express assessment of the taxpayer's allegations.

7. The AEAT has promoted that the relevant factual issues for instructing a possible sanctioning procedure be known and adequately discussed prior to the resolution of the same, establishing in each case the most appropriate formula of communication with the company to ensure this circumstance.

8. The AEAT has tried to avoid an excessive length of the inspection procedure, and this with greater intensity when the companies have put into practice the conduct described in section A.1 above.

B) Practices for ongoing monitoring and evaluation of compliance with the Code's recommendations

In order to ensure adequate monitoring and verification of compliance with the commitments contained in the CBPT , the AEAT and companies may request an evaluation of compliance with the Code's recommendations.

This request will be made through those responsible for cooperative compliance referred to in section 3.c) of this document.

These monitoring and verification actions may be carried out during the development of any procedure for applying taxes to the extent that it affects the same and, preferably, prior to the disclosure of the file, or at the end of the same. In general, the company's tax manager, the Head of the Tax and Customs Control Unit or the Head of the Inspection Unit affected and, where appropriate, the corresponding Chief Inspector and the Head of the Team or Unit that has been acting must participate in them.

C) Treatment of cases of compliance or non-compliance with the recommendations of the Code

The AEAT and the companies may agree to record the assessment or evaluation of compliance by both parties with the commitments and recommendations of the CBPT , within the scope of the procedures for applying taxes.

During the course of said tax application procedures, compliance with all the listed conduct that has been necessary/convenient for the correct development and conclusion thereof may also be recorded.

In the event of correct compliance by both parties with the recommendations of the Code, the AEAT may record this (in statistical or general terms) in its Annual Activities Report.

Within the scope of inspection procedures, cases in which the AEAT or the company consider that there has been non-compliance with CBPT will be analyzed and assessed within the scope of the DCGC or the Special Delegation, with the participation of the Head of the DCTA or the affected Inspection Unit, as well as the Central or Special Delegate and the company representative.

If after this analysis the company's non-compliance is still considered to be in breach by AEAT , the Central Delegate for Large Taxpayers or the Special Delegate will raise the matter to the Director General of the Agency who, if he deems it necessary, will transfer it to the head of the Technical Secretariat of the Large Business Forum, who will inform the representative of company of the serious non-compliance and of the Company's Board of Directors and of the present or future conduct and commitments to be assumed by the company related to the reason for the non-compliance appreciated that are consistent with the recommendations and postulates of the Code of Good Tax Practices.

Once the communication has been received, the entity will have a period of 15 days to make any allegations it deems appropriate, and may present the commitment of the Board of Directors not to repeat the causes that gave rise to the aforementioned communication.

After this period has elapsed and there is no rectification or agreement between the parties, the Administration will exclude the entity from the list of entities adhering to the Code of Good Tax Practices, will suspend compliance with the administration's commitments within the framework of the same with respect to the entity in question and, if the latter is a member of the Large Business Forum, will proceed to exclude it from the latter.

The agreement to exclude entities from the list of entities adhering to the Code of Good Tax Practices will be valid for a minimum of two years, and the entity may reapply for inclusion in the list if the circumstances that motivated the exclusion change and it does not incur in other breaches that could motivate it.

If the company continues to consider that it has not complied with the AEAT , it may direct the Director of the Financial and Tax Inspection Department to assess the non-compliance and request that the relevant measures be adopted to ensure that its effects are corrected.

Likewise, the AEAT and the companies will inform the Monitoring Committee of the CBPT at least once a year of the cases and the typology of conduct or factual assumptions that may have been considered non-compliance with the recommendations of the Code.

2. Strengthening good practices in corporate tax transparency

In order to advance the development of best practices in corporate tax transparency that lead to an improvement in the cooperative relationship between the AEAT and the companies that are members of the CBPT , promoting a more appropriate and early mutual understanding and evaluation of tax policy and tax risk management, companies that are members of the Code may provide the AEAT with certain information, preferably before the end of the regulatory deadline for filing returns to the extent that they are available, as provided for in the last paragraph of section 3 of the Conclusions approved in 2013 on the following aspects of their actions and decisions in tax matters:

• Presence in tax havens and explanation thereof.

• The Group's international taxation schemes (including, among others, financing, management of industrial and intellectual property and management fees) as well as degree of congruence with the principles of the actions  BEPS of the OECD .

• Significant changes in structures holdings y subholdings.

• Explanation of the most significant corporate operations.

• Group tax strategy approved by governing bodies.

• Catalogue of operations to be submitted or submitted to the Board of Directors.

• Internal instructions on the prevention of illicit operations, money laundering or the concealment of assets.

• Information on existing tax disputes.

• Mention of tax compliance in the entity's Management Report or Integrated Report.

Each company and the AEAT , by mutual agreement, will establish the content and scope of this information, as well as the format in which it must be available to the Agency.

3. Other commitments that will strengthen compliance with the Code

1. Dissemination by the AEAT of the criteria it applies in its control procedures, insofar as they are susceptible to being applied in a general manner, and the creation of a system to notify companies adhering to the Code of such criteria.

2. Establishment, by the AEAT and the companies, of a standardized format for the contribution of the documentation that will be provided by the companies adhering to the Code in the procedures for the application of taxes that are carried out with the latter.

3. Dissemination of the people of the AEAT and the companies that have been designated as responsible for cooperative compliance, as well as the functions to be performed by them.

4. Introduction of an informal communication mechanism (secure website) between companies and the AEAT , through which all activity related to the CBPT could be channeled.

5. Adoption by the AEAT of periodic internal communication actions to disseminate the Code's commitments.

6. Organization by the AEAT of periodic meetings with companies adhering to the CBPT , especially with those that are not part of the Large Business Forum.

7. Inclusion in the Annual Activities Report of the AEAT of a section dedicated to the actions carried out within the scope of the cooperative relationship.