Authors: Beltrán Sánchez, Transfer Pricing Partner, and Tomás Luciano Ramin, Transfer Pricing Assistant
A few months ago, the Eighteenth Additional Provision was published in the Official State Gazette, concerning Temporary Measures in the Determination of the Tax Base in the Tax Consolidation Regime.
At first glance, this measure appears to be controversial, at least for companies taxed under the tax consolidation regime, as from 2023 only 50% of net operating losses will be deductible. This means that for 2 years, the right to use the negative results of the companies in the consolidated group will be reduced.
When dealing with this issue, we need to focus again on transfer pricing. The design of transfer pricing policies could be one of the most interesting alternatives to recalibrate the results of group companies and achieve a better scenario in terms of consolidated taxation.
Traditionally, related-party transactions within consolidated tax groups have been largely forgotten in the design of transfer pricing policies for multinational groups, due to their lack of tax impact. However, it should be remembered that the regulation does require these transactions to be valued at market value, although no supporting documentation is required.
A detailed analysis of the income statements of companies belonging to a group and a review of their functional profiles will often reveal transfer pricing policies which, by more effectively reflecting the market value principle, would eliminate net operating losses in many of these companies. This fact, in turn, will lead to a reduction in the tax bases of their counterparts, resulting in a taxation that is more in line with the legal principles of the tax system, and which will also lead to an improvement in the taxation of multinational groups.
Of course, the above is not something to be taken lightly. In other words, it is not just a matter of restructuring in order to avoid net operating losses. Before taking any decision that will have a serious impact on the results of the companies affected by this new measure, a thorough analysis should be carried out, taking into account the reasons and motives for undertaking such a process and the economic benefits that can be expected.
It is also important to remember that transactions between related parties should always be carried out at market value, otherwise the tax group companies will be subject to valuation adjustments if new transactions resulting from the restructuring have not been carried out on an arm’s length basis.
