“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables has led us to resort to the use of other generally accepted valuation methods and techniques. In this respect, it should be noted that this situation is frequent when valuing transactions related to intangibles, and the Guidelines have expressly echoed this situation (in particular, in paragraphs 6.138, 6.153, 6.156, 6.157 and 6.162, which are transcribed in section 6.2 of this Report).” A complaint was filed by “XZ Insurance SA” Judgement of the TEAC The TEAC dismissed the complaint of “XZ Insurance SA” and upheld the tax assessment. Excerpts from the decision concerning the assessment of income for use of the trademarks by other group companies “On this issue, it is worth pointing out an idea that the complainant uses recurrently in its written submissions. The complainant considers that if there is no growth in the number of policies and premiums, it should not be argued that the use of the XZ brand generates a profit in the subsidiaries. However, as the Inspectorate has already replied, it is not possible to identify the increase in the profit of the brand with the increase in premiums, nor that the growth, in certain countries, of the entities is exclusively due to the value of the brand. Logically, increases and decreases in premiums are due to multiple factors, including the disposable income of the inhabitants of each country, tax regulations, civil liability legislation, among others, and we cannot share the complainant’s view that the brand does not generate a profit in the event of a decrease in premiums in the market. Furthermore, insofar as the enforceability of the royalty is conditioned by the fact that the assignment produces a profit for the company using the brand, there is greater evidence as to the usefulness of the brand in the main markets in which the group operates and in which it is most relevant: Spain, COUNTRY_1, Latin American countries, COUNTRY_2, COUNTRY_3, COUNTRY_4 and COUNTRY_5. Finally, one aspect that draws the attention of this TEAC is the contrast between what the complainant demands that the administration should do and the attitude of the administration in the inspection procedure. On the one hand, it demands that the administration carry out a detailed analysis of the valuation of the profit generated by the trademark for the group, but, on the other hand, there is a total lack of contribution on the part of the entity in providing specific information on the valuation of the trademark that could facilitate the task it demands of the administration. In fact, this information was requested by the Inspectorate, to which it replied that “there are no studies available on the value or awareness and relevance of the XZ brand in the years under inspection” (…) “It follows from the above that it has not been proven that the different entities of the group made direct contributions or contributions that would determine that, effectively, the economic ownership of the trademark should be shared. Therefore, this TEAC must consider, given the existing evidence, that both the legal and economic ownership of the trademark corresponds to the entity XZ ESPAÑA. In short, it is clear from the facts set out above that certain entities of the group used, and use, for the marketing of their services and products, a relevant and internationally established trademark, the “XZ” trademark, which gives them a prestige in the market that directly and undoubtedly has an impact on their sales figures, with the consequent increase in their economic profit. It is clear from the above that there was, in the years audited, a transfer of use of an established, international brand, valued by independent third parties (according to the ONFI report, according to …, between … and …. million euros in the years under review) and maintained from a maintenance point of view (relevant advertising and promotional expenses). Therefore, it is reasonable to conclude, as does the Inspectorate, that, in a transaction of this type – the assignment of the “XZ” trademark – carried out at arm’s length, a payment for the use of the intangible asset would have been made to its owner, without prejudice to the fact that the value assigned to the assignment of use of the aforementioned trademark may be disputed; but what seems clear, and this is what the TEAC states, is that it is an intangible asset whose assignment of use has value. In conclusion, the TEAC considers that the entity owning the trademark (XZ SPAIN) had an intangible asset and transferred its use, for which it should receive income; by transferring the use of the asset to group entities, both domiciled in Spain and abroad, it is appropriate to calculate that income for XZ SPAIN by applying the regime for related-party transactions.” (…) “In section 6 of the report, as we have already analysed, ONFI attempts to find external comparables, insofar as there are no internal comparables within the group, reaching the conclusion that they cannot be identified in the market analysed. Consequently, it proceeds to estimate the royalty that XZ Spain should receive, by applying other methodologies that allow an approximation to the arm’s length price, based ...

The issue presented before the Spanish Supreme Court is if and how the arm’s length principle apply to the salary of the owner of a consultancy company for personal services provided to an independent company, i.e. if the price agreed for provision of these services to an independent party is a CUP in relation to the salary of the owner. “In order to determine the market value of the services provided by Mr. Primitivo to the company LA REHOS, S.L., is based on the value of the relationship between LA REHOS, S.L. and the third parties from which it obtains the income for the services rendered by Mr. Primitivo with the necessary corrections to obtain the equivalence: those derived from the expenses and costs related to the activity of Mr. Primitivo incurred by or residing in the entity LA REHOS, S. L. and those that originated in the expenses or costs related to the services provided by Mr. Primitivo to UNIPREX SAU and to the different written media initially accounted for in the rest of the related entities and subsequently transferred to LA REHOS, S.L., by means of internal invoicing.” In a judgement handed down on 7 July 2021 the National High Court set aside the assessment of the tax authorities, and an appeal was then filed with the Supreme Court. Judgement of the Supreme Court The admission of the appeal was allowed by the Court. “However, the Supreme Court has not ruled on how to regularise professionals who obtain their income through professional partnerships in the case of the provision of intuito personae services, and the tax administration has considered that they should be regularised as related-party transactions by means of valuation at market prices, considering that, in order to determine the normal market value, the price at which the third-party company contracted the professional partnership through which the partner provided his services should be taken into account.” A judgement will be handed down on the following issues Determining whether section 2 of Article 45(2) of Royal Legislative Decree 3/2004, of 5 March, approving the revised text of the Personal Income Tax Act, establishes a presumption iuris tantum or iuris et de iure, by stipulating that the consideration effectively paid shall be deemed to coincide with the normal market value in transactions corresponding to the exercise of professional activities or the provision of personal work by individuals to companies in which more than 50% of their income comes from the exercise of professional activities, provided that the entity has the personal and material resources to carry out its activities. Specify, in cases where the service provided by a natural person to the related company and the service provided by the related company to independent third parties is substantially the same, being the provision of an intuito personae service, and with the company lacking the means to carry out the transaction except through the necessary and indispensable participation of the natural person – not providing added value (or this being residual) to the work of the natural person – if it is in accordance with the methodology for related-party transactions in 2006, to consider that the consideration agreed for this second transaction is the market price of the good or service in question. Likewise, in the same circumstances described above, specify whether it is in accordance with the methodology for related-party transactions for 2007, to consider that the consideration agreed for this second transaction is a “comparable non-related transaction”, it not being necessary to incorporate a valuation adjustment for the mere recognition of the existence of the company, and this without prejudice to the corrections that, in application of the comparable free price method, should be made for the fiscalcularly deductible expenses that are centralised in the company. Click here for English translation Click here for other translation ATS_10616_2022 ...