Sierra Spain Shopping Centers Services S.L.U. is part of a multinational group that manages shopping centres. Sierra Spain had deducted expenses for services rendered from a related party in Portugal. According to Sierra Spain, the services were related to strategic management and marketing. The tax authorities considered the expenses non-deductible and issued an assessment of additional taxable income. With respect to the strategic business management services, the tax authorities found that there was no contract between the parties. In addition, the authorities found the justification for the actual provision of services was insufficient. With regard to the marketing services, these were contracted by the Portugal-based entity to an external supplier and subsequently re-invoiced to the related parties receiving the service in Portugal, Brazil and Spain. The tax authorities considered that these services were shareholder costs and therefore not deductible in Sierra Spain. Sierra Spain appealed to the Tax Court, which upheld the assessment of the tax authorities. An appeal was then lodged with the National Court. Judgement of the Court The Court dismissed Sierra’s appeal regarding fees for management services, but ruled in favour of Sierra regarding fees for marketing services. According to the Court, Sierra had not provided sufficient supporting documentation for the management services. The Court considered that the invoices submitted were too general and that the description of the services in the invoices referred to an intercompany agreement that had not been provided. In addition, the Court considered that the internal correspondence submitted as evidence of the services provided only supported the existence of habitual and ordinary relations between the employees of the Spanish and Portuguese companies. Therefore, the requirements laid down in the Spanish legislation to support the deductibility of the management services had not been met. With regard to the expenses for marketing services, the Court stated. “Both the general purpose of the market studies (as described, for example, on p. 16 of the contested decision) and their content, in which the references to the activity carried on in Spain are of significant relevance, support the claimant’s assertion that the marketing services at issue would be subsumed under paragraph 7.14 of the OECD Guidelines, as intra-group services (specifically, as marketing assistance), and not under point 7.9 as shareholder costs (p. 31 of the complaint). Consequently, given the reality of the service, its relation to the Appellant’s activity and the utility or advantage it brings or may bring to its recipient, the deductibility of the expense incurred in 2008 for this specific item must be accepted. In order to consider the latter to be established, that is to say, that we are dealing with shareholder costs which would benefit the group and not the appellant, it is necessary to provide a statement of reasons and a greater effort of argument than that made in the present case by the Tax Inspectorate and by the contested decision. Thus, the reasons given by the tax authorities are not sufficient to establish that the basic and essential premise underlying the concept of shareholder costs is met, that is to say, that we are dealing with an activity for which the appellant entity has no need and which, therefore, it would not be prepared to pay if it were dealing with independent undertakings.” Click here for English translation Click here for other translation ...

Where no written terms exist, or where the facts of the case, including the conduct of the parties, differ from the written terms of any agreement between them or supplement these written terms, the actual transaction must be deduced from the facts as established, including the conduct of the parties (see Section D. 1.1 of Chapter I). It is, therefore, good practice for associated enterprises to document their decisions and intentions regarding the allocation of significant rights in intangibles. Documentation of such decisions and intentions, including written agreements, should generally be in place at or before the time that associated enterprises enter into transactions leading to the development, enhancement, maintenance, protection, or exploitation of intangibles ...

Where no written terms exist, or where the facts of the case, including the conduct of the parties, differ from the written terms of any agreement between them or supplement these written terms, the actual transaction must be deduced from the facts as established, including the conduct of the parties (see Section D. 1.1 of Chapter I). It is, therefore, good practice for associated enterprises to document their decisions and intentions regarding the allocation of significant rights in intangibles. Documentation of such decisions and intentions, including written agreements, should generally be in place at or before the time that associated enterprises enter into transactions leading to the development, enhancement, maintenance, protection, or exploitation of intangibles ...