Transfer pricing for goods and services in Spain
What is transfer pricing
Transfer pricing is the total value given to a transaction between two related companies.
It may happen that two related companies agree on prices, for certain products or services, different to those those which would had been agreed between two companies that have no relationship between them.
By doing this the linked companies, to their convenience, transfer between them a loss or a profit making one of the two companies pay less tax.
The problem is more evident in multinational companies that can transfer income to their own enterprises in areas of lower taxation.
For this reason the tax authorities of the different countries require that transactions between related companies are conducted according to the market price. The market price is the one that would be agreed between two unrelated companies.
Ways to calculate market price
In order to know the market value of the transactions the following methods can be applied:
Comparable market price
This is the price that the good or service has in the market today. In order to compare the different prices in the market, other transactions between companies of which the price is known may be considered.
Acquisition price or cost of production increased
In this method the price of the transaction is estimated increasing, to the purchase price or production cost, the net profit that would usually be obtained between two independent entities in the same sector.
Reduced sales price
This is the price that a hypothetical buyer of goods would obtained, reduced in his net profit margin.
Distribution joint result of the operation
In this case the estimation system consists in finding out what has been the profit of the set of transaction carried between the related companies from the production of the good or service to the sale to an independent third party. The price to take into account is the one which corresponds to each related company in relation to its participation in the preparation of the product or service..
Net operational margin
This method is used when, due to its complexity, the joint result of the operation cannot be determined. In this case, in order to know the tranfer price, indicators such as return on assets, sales benefit ratio, etc. are used.