Code of Best Tax Practices
Drawn up and approved by the Large Enterprises Forum to foster a mutually co-operative relationship between the Tax Agency and the companies subscribing it.
Proposal for the reinforcement of good practices of corporate tax transparency of companies adhering to the Code of Good Tax Practices, approved at the plenary session of December 20, 2016 (October 28, 2016)
Introduction: Fiscal transparency and cooperative relationship
In recent years, multiple initiatives have emerged in the field of transparency (from the “Extractive Industries Transparency Initiative” of 2003 – EITI - to the recent actions of the program
Tax transparency or fiscal transparency is the way in which companies communicate their attitude towards taxes and the amount of taxes paid, as well as the way in which they provide their shareholders and other stakeholders with clarity about their taxation and assurance that they offer responsible tax compliance in the countries in which they operate.
Fiscal transparency involves providing information beyond legal requirements, so that an adequate level of transparency seeks to improve the reputation and image of the company as a responsible taxpayer, thereby increasing the value of companies and the interest of investors.
In the relationship between companies and the tax authorities, tax transparency also implies openness and communication of information to a greater degree than that provided for and required by tax regulations.
The OECD in its 2008 Study on the Role of Fiscal Intermediaries defined the cooperative relationship as “… a relationship between the taxpayer and the tax administration based on cooperation and the mutual trust between both parties that implies a willingness to go beyond the mere fulfillment of their legal obligations” .
The essence of this relationship and what explains why the conduct of the parties goes beyond the boundaries of what is strictly required by law is the existence of an exchange of transparency for early certainty and/or legal security. Given the company's attitude of transparency, openness and communication of information, the conduct of the tax administration must be predictable and provide certainty and legal security to the company in making its business decisions, hence both parties in the relationship show interest in transparency in tax matters.
Tax authorities interested in this line of further development of tax transparency hope to achieve general transparency in cross-border operations and transactions in order to better understand the company's entire value chain and the taxes paid in each country, as well as the agreements reached with other tax jurisdictions. But they also aim to achieve transparency in the specific case in order to establish a cooperative relationship with the company and achieve a correct determination of the tax risk profile of each particular company.
For their part, companies interested in increasing fiscal transparency with the tax administration seek, in addition to the aforementioned reputational improvement, to obtain a constructive and productive dialogue with the latter that allows them to have greater certainty and legal security for their business decisions, as well as a reduction in the compliance costs they bear, especially by adapting control actions and verification procedures to this new framework of cooperative compliance and to the different level of risk they may present.
Therefore, tax transparency provides the company and/or the tax administration with advantages in the three areas mentioned:
-
that of reputational improvement,
-
that of building a useful cooperative relationship, and
-
that of a correct analysis of the taxpayers' tax risks
Taking these premises into account, on November 2, 2015, the Plenary Session of the Large Business Forum agreed to introduce an Annex to the Code of Good Tax Practices (hereinafter, CBPT ) to strengthen the cooperative relationship between the Tax Agency and the companies adhering to this instrument of good tax governance through a series of actions that seek to promote transparency and legal certainty in compliance with tax obligations. (1).
Under the heading “Strengthening good practices in corporate tax transparency”, section 2 of the aforementioned Annex establishes that companies may make information available to the Tax Agency (hereinafter, AEAT ) on a series of actions and decisions in tax matters.
In summary, it is about the delivery of information on certain aspects of the economic activity of companies that range from the explanation of the presence in tax havens, the financing structure of business groups, as well as the degree of congruence with the principles of the shares of the so-called 'Package BEPS ' of the OECD , to the explanation of the most significant corporate operations, the tax strategy of the group approved by the governing bodies and the catalog of operations that are submitted to the entity's board of directors.
The stated objective is to facilitate “early knowledge of tax policy and tax risk management” of companies, which will ultimately result in improved legal certainty and lower compliance costs and will contribute to a reduction in conflicts.
Regarding the submission of this information, it is noted that it is preferably provided prior to filing the Corporate Tax return and that 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 AEAT .
In addition to the above, it is essential to highlight that the Resolution of February 22, 2016, of the General Directorate of the AEAT , which approves the general guidelines of the Annual Tax and Customs Control Plan for 2016 ( BOE of February 23), has expressly included the possibility that companies adhering to the CBPT provide the AEAT with information on tax matters, under the following terms:
“Furthermore, the reinforcement of good practices in order to increase corporate tax transparency will lead to an improvement in the cooperative relationship between the Tax Agency and companies adhering to the Code of Good Tax Practices. This will generate a more appropriate and early understanding and mutual evaluation of tax policy and tax risk management, by promoting actions aimed at ensuring that companies adhering to the Code provide the Tax Authority with certain information directly related to their actions and decisions in tax matters, in the terms set out in the Conclusions regarding the development and monitoring of the application of the Code of Good Tax Practices within the framework of the cooperative relationship between the Tax Agency and companies, approved at the plenary session of the Large Business Forum on 2 November 2015. (…)”
II.- Purpose of the proposal
Based on the considerations that have been set forth, the purpose of this document is to develop a proposal for strengthening good corporate tax transparency practices referred to in Annex to CBPT . Specifically, it is about articulating the content and use of a report that could be called "Annual Fiscal Transparency Report for companies adhering to CBPT " (hereinafter, Transparency Report).
To this end, the scope of the information, its nature, use, form and deadline for submission are first described.
Secondly, the question is what type of actions the AEAT will be able to carry out after receiving the transparency reports, that is, how it will exploit the information and what consequences it may have for companies.
Thirdly, an analysis is made of the possible use or advantage that companies adhering to the CBPT would obtain if they provided the AEAT with the reference information.
Finally, this document is accompanied by a set of guidelines on the content of the Transparency Report itself, which are intended to serve as a reference to define the information that each of the companies adhering to the CBPT are willing to provide to the AEAT , with full respect, in any case, to the aforementioned principle according to which the content, scope and format of the report will be established for each specific case by mutual agreement between the company and AEAT .
III.- Scope of information: character, use, form and deadline for submission
The reinforcement of good practices in fiscal transparency of companies adhering to the CBPT must, in any case, respect the right to the protection of data with tax implications.
It is important to bear in mind that the information obtained by the Tax Authority becomes tax-relevant when it is aimed at the effective application of taxes, although its usefulness may be potential, indirect or hypothetical.
Therefore, it is understood that the information provided by companies in accordance with the provisions of Annex to CBPT enjoys the confidential nature enshrined in article 95 of Law 58/2003, of December 17, General Tax Law, in the following terms:
“Article 95. Confidential nature of data with tax significance.
1. The data, reports or background information obtained by the Tax Administration in the performance of its functions are confidential and may only be used for the effective application of the taxes or resources whose management is entrusted to it and for the imposition of the appropriate sanctions, and may not be transferred or communicated to third parties unless the transfer is for the purpose of: (…)”.
In short, although it is the companies adhering to the CBPT who agree to provide the information contained in the Transparency Report referred to in this document, in any case, given the nature of the information and given that it is obtained by the AEAT in the exercise of its functions, it must guarantee its confidential nature.
As regards the use and destination of the information contained in the Transparency Report by the AEAT it is estimated that in order for it to be appropriate for its purpose, that is, the early knowledge of the tax policy and tax risk management of the companies adhering to the CBPT , its use cannot be other than for the risk analysis activity proper to the Tax Inspection bodies, so it seems appropriate that the Report be sent to this body.
As regards the scope of the information sent, taking into account the purpose stated in the previous section and the principle of determining said scope by mutual agreement between the company and AEAT , it may be limited to that which has or may have fiscal significance in Spain or have a broader scope.
From a purely practical point of view, it is considered that, at least during the first moments of implementation of this reinforcement of good practices in corporate tax transparency, it is preferable that the Tax Transparency Report be sent, in all cases, to the Head of the Tax and Customs Control Unit of the Central Delegation of Large Taxpayers and not only when the company issuing the Report is attached to this Delegation. All this without prejudice to the powers that correspond to the bodies of the Tax Inspection of the Special Delegations of the AEAT with respect to companies not assigned to the Central Delegation.
To this end, companies may submit the transparency report:
-
either in paper format at the Registry of this Central Delegation of Large Taxpayers, directing the letter to the Tax and Customs Control Department;
-
either in electronic format to an email address of the Tax and Customs Control Department that would be provided to the company in question through the contact persons responsible for cooperative compliance.
In both cases, it will be noted that the company has submitted the transparency report: through the entry issued by the Registry of the Central Delegation of Large Taxpayers or by replying to the company's email address.
As regards the deadline for submitting the information, as previously indicated, Annex to CBPT provides that it will take place, preferably, prior to filing the Corporate Tax return.
However, given the purpose of the Report, it is understood that there is no problem with proceeding to its submission after the end of the declaration period for the aforementioned tax.
It is, however, advisable to set an indicative period for the presentation of the Fiscal Transparency Report. For these purposes, it is proposed that companies may submit the aforementioned report from the day following the approval of the annual accounts (which must take place within six months following the close of the financial year) until three months after the end of the deadline for filing the Corporate Tax return, that is, until October 25 if the financial year coincides with the calendar year.
IV.- Processing of the information submitted
In the process of exploitation and analysis by the AEAT of the information contained in the Transparency Report, the following phases or stages can be distinguished:
-
Submission and reception of the Report
-
Report Explanation
-
Provision of documentation
In this regard, it is worth remembering that the cooperative relations working group, created within the Large Business Forum, presented a series of conclusions in October 2013 which included the establishment of a bidirectional and specialized relations channel between companies and the AEAT . (2)
It is considered appropriate to use the aforementioned communication channel in all the phases indicated above.
A) Submission and reception of the Report
As already noted, the Transparency Report will be sent by the means chosen by the company to the Head of the Tax and Customs Control Unit of the DCGC who will acknowledge receipt of it once received. This Department will carry out an initial analysis of the information received to verify its suitability for the purposes of strengthening the company's good fiscal transparency practices. The result of this first preliminary assessment will be communicated to the company's managers and at the same time the manner in which the explanation stage of the Report described below should take place will be established by mutual agreement with the company.
B) Report Explanation
Through the aforementioned communication channel, the company and the AEAT will agree on the best way to proceed with the explanation of all the details contained in the Transparency Report that require such explanation, in particular those that, due to their complexity, confidentiality or commercial sensitivity, have not been sufficiently explained in the Report itself. In this phase, the company will be able to complete, expand, detail and clarify any relevant data and information.
At the end of this phase, which will generally be completed after a reasonable and sufficient period (four or five months) from receipt of the Transparency Report, the AEAT will provide the company with its opinion on the information provided.
At the request of the company adhering to the CBPT , the contribution of the Transparency Report may be mentioned on the AEAT website with an indication of the fiscal years in which said report has been submitted.
C) Provision of documentation
Once the previous phases have been completed or during the explanation phase of the Transparency Report, the company, voluntarily or at the request of the AEAT , may provide supporting documentation for the information contained in the Transparency Report, or additional or complementary documentation to that information, in order to allow the Inspection bodies to determine the company's risk profile and act accordingly.
For these purposes, the provisions contained in the annual control plans relating to the verification and analysis of information voluntarily provided by companies adhering to CBPT will apply, and the information and control activities deemed appropriate will be planned and developed.
In this regard, in view of the information contained in the Transparency Report and the documentation subsequently provided to the Tax Inspectorate, the latter will transfer to the company its assessment in relation to certain aspects included in the Report that will allow the latter to know the administrative criteria applicable to aspects to which the report refers and that may be useful both for the development of good tax practices in general, and for the presentation of corporate tax returns in particular.
Where appropriate, the company may also obtain this assessment by carrying out the consultations provided for in section 2.3 of the CBPT .
Likewise, when the Tax Inspection has carried out the corresponding risk analysis, it will determine what actions it will carry out in order to offer sufficient legal security in this regard to the company issuing the Transparency Report.
In any of the above cases, at this stage a dialogue between the company and the Inspection Service may be initiated, which will allow for the construction of a solid and productive cooperative relationship for both parties.
V.- Usefulness of the report for companies
As indicated above, the voluntary contribution by companies adhering to the CBPT of the Transparency Report presents a series of advantages for them that should be highlighted.
In the area of improving the company's reputation, companies that submit this Report may give the level of publicity they consider appropriate to this fact. In turn, the AEAT , without prejudice to the fact that, as indicated above, the information provided is of tax significance and, consequently, of a confidential nature as provided for in article 95 of Law 58/2003, of December 17, General Tax Law, at the request of the company, may disclose on its website that the Transparency Report has been voluntarily made available to the AEAT .
The presentation of the Report and the corresponding documentation will also allow the construction of a useful cooperative relationship to the extent that companies, in exchange for transparency, will receive an early assessment by the Inspection on certain aspects referred to in the Report, thereby also achieving a reduction in litigation on these same aspects of their taxation.
Indeed, the presentation of this information will allow the initiation of an informal discussion process with the AEAT in which the company may, if necessary, clarify the information provided or provide additional details on the criteria applied in its preparation, favouring a reduction in the legal uncertainty to which they could be exposed, as well as litigation between both parties. If, in addition, this document is submitted before the end of the regulatory deadline for submitting the declaration, the company may adapt its content based on the criteria stated by the AEAT , further increasing its legal security.
Additionally, if, in relation to any specific aspect that may have arisen during this process, the company wishes to obtain the written opinion of the AEAT it may raise in writing its doubts about the tax treatment of certain operations or transactions, in accordance with the provisions of section 2.3 of the CBPT .
This possibility provided for in the CBPT has been developed in section II.2 of the document “Conclusions of the working group on the new model of cooperative relationship between the tax agency and companies adhering to the Code of Good Tax Practices”, dated October 29, 2013, according to which, independently of the legal mechanism for consultation with the General Directorate of Taxes, companies may raise with the AEAT their doubts about the tax treatment of operations of special complexity and economic significance, accompanying a report in which they will set out the criteria they consider applicable. The AEAT , in view of the above, may issue a report on the issues raised, collecting the criteria on the subject of the tax enforcement bodies, in the terms established in said document.
On the other hand, it should be remembered that section 2.4 of the CBPT already provides that member companies may submit an explanatory annex along with their tax returns which, to the extent that the data communicated corresponds to reality and the criteria applied are reasonably founded, will be evaluated favorably for the purposes of determining the diligence, fraud or fault referred to in the General Tax Law.
Finally, the preparation by the Inspection of a correct analysis of the company's tax risks will result in more efficient and early administrative control of the company and, therefore, in obtaining legal certainty in a more immediate time, allowing the company to know more quickly which aspects may be considered tax risk by the tax authorities and which cannot.
VI.- General conclusion
The agreement between the AEAT and companies on the reinforcement of good practices in fiscal transparency, which is reflected in the Transparency Report, as well as the use that will be made of it, represents a significant advance in the establishment of a model of cooperative relationship between both parties, based on the principles of transparency and mutual trust through knowledge and sharing of problems that may arise in the application of the tax system, as well as in compliance with the objectives set out in the CBPT .
This new step towards a more cooperative relationship between companies and tax authorities will, however, require an evaluation of its operation and results in the future, and it is highly advisable that, for these purposes, either party proposes the modifications and/or improvements that are considered appropriate, both in relation to the content and in relation to the monitoring of these good transparency practices.
VII.- Year 2016. Transitional period of experimental nature
It is considered that the voluntary submission by companies in 2016 of a first Transparency Report can serve as a pilot experience to improve, complete and modulate the present proposal for good transparency practices in the future.
In this regard, it is proposed that companies that consider it convenient and useful during 2016 to enter into this experimental process submit the Enhanced Transparency Report with the content they consider sufficient and appropriate to their situation and activity, taking into account the objectives and scope of the information described above.
However, this proposal includes general and flexible guidelines on the possible structure and content of the report model that companies that so consider may voluntarily follow for the preparation in 2016 of an Annual Report on Fiscal Transparency for the 2015 fiscal year.
Guidelines on the structure and content of the “Annual Tax Transparency Report for companies adhering to the Code of Good Practices” model
IDENTIFICATION DATA OF THE ISSUER OF THE REPORT
EXERCISE DATE REFERENCE:
CIF :
SOCIAL DENOMINATION:
REGISTERED OFFICE:
STATEMENT BY THE ISSUER OF THE REPORT
The company voluntarily provides this information in accordance with the Annex to the Code of Good Tax Practices, approved on 2/11/15.
The information was provided after the annual accounts were filed and is confidential. The company expressly declares that the information provided is true and reliable.
Explanation of the reasons why the company has voluntarily decided to present this information.
Explanation of the general scope of the information provided, indicating those sections of the Report in which the company chooses to report only on aspects that have or may have tax implications in Spain.
A.- STRUCTURE AND INTERNATIONAL ACTIVITY OF THE GROUP
Explanation and description of the group's main lines of business and its geographical location and size of each of the business lines.
B.- PRESENCE IN TAX HAVENS
Description of the types of activities carried out in these territories, as well as the functions, risks and size of the group entities that carry them out, as well as other data that allow such activities to be analysed and justified.
For these purposes, the company may report on the territories classified as tax havens in accordance with Spanish regulations or also include information on those other territories that, according to other criteria it considers appropriate, could be included in the category of tax havens or zero-taxation zones.
C.- INTERNATIONAL AND CUSTOMS TAXATION
C.1. FINANCING
Description of the main aspects of the group's financing structure with an explanation considered appropriate and sufficient regarding the companies that obtain financing from outside the group, from the group, or grant financing within the group.
Explanation of the use of the conditions of provision of services of
Description of the group's general policy regarding the use of derivative financial instruments.
Description of the group's general policy regarding the distribution of dividends (intra and extra-group).
C.2. INDUSTRIAL AND INTELLECTUAL PROPERTY MANAGEMENT
Description of the group's main intangibles and where the centres dedicated to research and development activities are located.
Description of the main agreements for the creation, acquisition, licensing and transfer of intangibles in force during the year, both between group entities and with entities outside the group.
C.3. INTRAGROUP SERVICES
Description of the services provided by entities of the group to other entities of the same with special reference to the so-called "
Description of the existence of “ on demand ” or “ available ” and “ low added value ” services.
Description of the method of determining the remuneration of the aforementioned intragroup services and the valuation method chosen.
Explanation of whether the group has a “central purchasing office” and, if so, how it operates and how it is remunerated.
C.4. FOREIGN TRADE OPERATIONS IN GOODS AND SERVICES
Description of the organization of foreign trade and services operations, with reference to purchases and sales and services provided and received.
C.5. DEGREE OF CONGRUENCE WITH PRINCIPLES AND ACTIONS
Explanation of the degree of consistency of the company's tax behavior, in relation to the principles and actions BEPS , with the information that is considered sufficiently justifying. In this regard, all those operations, acts or events that may give rise to double deductions of expenses, double use of tax benefits, double use of losses, use of hybrid entities or instruments, double non-taxation, will be explained, with an explanation of their justification and degree of consistency with the principles and actions BEPS .
The Company may consider providing information on potential transactions subject to disclosure obligations in other jurisdictions.
Explanation of whether any of the following operations have been carried out or are in force for which any agreement or administrative decision has been obtained: agreements relating to the application of preferential tax regimes; Apas; agreements that include any downward adjustment of benefits; agreements relating to permanent establishments; agreements on income channelling companies.
D.- SIGNIFICANT CHANGES IN STRUCTURES HOLDING Y SUBHOLDING
Explanation of the implementation of significant changes in the structures holding and subholding that have been fully or partially implemented in the financial year and explanation of the operations and their economic reasons.
E.- MOST SIGNIFICANT CORPORATE TRANSACTIONS
Explanation of the most significant corporate operations, including branches and permanent establishments and intra- and extra-group business acquisition or transfer operations that have been carried out during the year, indicating the operations and their economic reasons.
F.- GROUP TAX STRATEGY APPROVED BY THE GOVERNING BODIES (529 ter Capital Companies Law)
Description of the group's tax strategy; how such a strategy is determined; who is responsible for it and where it is recorded and what internal control measures are applied to ensure that all employees affected by said strategy are aware of it and apply it (fiscal control framework).
G.- CATALOG OF TAX OPERATIONS SUBJECTED TO THE BOARD OF DIRECTORS (529 ter Capital Companies Law)
Explanation of how operations with special tax risk are determined and whose approval must be submitted to the Board of Directors and who determines this.
Explanation of what internal control measures are applied to ensure that all transactions requiring Board approval are agreed by the Board (for example, internal controls, external audit, etc.).
Explanation of the periodic monitoring of the effectiveness of control measures.
H.- INSTRUCTIONS ON PREVENTION OF ILLEGAL OPERATIONS, LAUNDERING OR ASSET MISCONDUCT
Explanation of whether you have internal instructions regarding the prevention of illicit operations, money laundering or the concealment of assets and who is responsible.
Explanation of whether these instructions are accessible to all personnel and how they can be accessed.
Explanation of the internal control measures applied to ensure that these instructions are complied with.
Brief description of these instructions.
I.- OTHER ISSUES
Explanation of the main existing tax disputes.
Explanation of tax queries submitted by the entity during the year, which may affect its taxation in Spain.
Explanation of whether any of the entities in your group participate in cooperative compliance programs.
Explanation of the tax treatment of other operations and activities that the entity considers relevant.
Reproduction, where applicable, of the mention of tax aspects to be included in the management or integrated report of the entity. (Corporate tax governance note).
J.- GENERAL OBSERVATIONS
Information relating to individuals or legal entities on an individual basis will be provided using the corresponding NIF , CIF or similar code where applicable, without prejudice to its consideration as non-public information, as well as the submission, in the case of individuals, to the regulations on the protection of personal data.
The information, unless otherwise stated, is as of the closing date of the fiscal year to which the Report refers.
All information that must be included in the report and is not under the control of the company will be provided based on the knowledge available to the company, the communications made to it in compliance with current provisions and the information contained in public records.
In determining the scope and specificity of the information contained in the report (data, background, participating group companies, volume of operations, tax figures, etc.), the company will take into account its reputational objectives in terms of strengthening transparency and its sufficiency for the purposes of promoting adequate risk control by the Administration.
(1) "Conclusions regarding the development and monitoring of the application of the Code of Good Tax Practices within the framework of the cooperative relationship model between the Tax Agency and Companies, approved at the plenary session of November 2, 2015" . New window (Back)
(2) "Conclusions of the Working Group on the new model of cooperative relationship between the Tax Agency and the companies adhering to the Code of Good Tax Practices for the Plenary Session of the Forum of Large Companies on October 29, 2013" . New window (Back)