The legal framework
Spain runs transfer pricing out of a single statutory article. Article 18 of Ley 27/2014, the Corporate Income Tax Law (LIS), requires related-party transactions to be valued at market value, meaning the value independent parties would have agreed under conditions of free competition. The duty is the taxpayer's own; it does not wait for an inspector, and it operates whichever way the correction runs.
The perimeter is article 18.2, which lists eight relationships: entity and shareholder; entity and its directors, with remuneration for the office itself carved out; spouses and relatives to the third degree of either; entities in the same group; an entity and the directors of another group entity; an indirect holding of at least 25 per cent; two entities whose common shareholders hold at least 25 per cent of each; and a Spanish resident and its foreign permanent establishments. The threshold is 25 per cent throughout, "administrator" catches de facto directors, and "group" borrows the control test in article 42 of the Commercial Code regardless of residence or whether consolidated accounts are filed.
The operating detail sits in Real Decreto 634/2015: articles 13 to 16 on documentation, 17 on comparability, 19 on the audit procedure and 21 to 36 on advance pricing agreements. Two design features matter. Article 18.14 walls the outcome off from other taxes, so a market value fixed for corporate, personal or non-resident income tax carries no automatic VAT consequence. And the OECD Guidelines are not enacted: the preamble to Ley 27/2014 gives them an interpretative role subordinate to article 18. The courts nonetheless apply them dynamically, the Supreme Court reasoning from the 2022 edition in judgment 985/2025 when reviewing 2014 and 2015.
Methods, comparables and benchmarking
Article 18.4 lists five methods without hierarchy: CUP, cost plus, resale price, profit split and transactional net margin. Selection weighs the nature of the transaction, the reliability of information and the degree of comparability. Other techniques are available only where none of the five works, and the fallback is disciplined: article 16.2 of the Regulation, using discounted cash flow as its example, demands the technique and reasons, the magnitudes, ratios, interest and discount rates, and assumptions tested against historical data or business plans, with observable inputs maximised. A DCF with undocumented inputs fails as compliance before anyone argues the number.
Comparability under article 17 runs the familiar factors but goes further than most, requiring account of any other circumstance the taxpayer could reasonably learn about, expressly naming losses, public authority decisions, location savings, assembled workforce and synergies.
Ranges are the contested ground. The statute is silent; article 17.7 of the Regulation, permitting statistical measures where data is imperfect, is the only positive rule. AEAT's note on the arm's length range, undated but created in February 2021, concedes that gap and endorses the interquartile range as generalised practice. On the point of adjustment it follows OECD paragraphs 3.60 to 3.62, adding that where unidentifiable comparability defects persist adjustment will ordinarily go to the median, provided the inspector expressly identifies those defects. The tribunals police that proviso hard: the Audiencia Nacional in 2019, 2021 and 2022, and TEAC on 26 May 2021, 23 November 2021 and 23 January 2023, all refused median adjustments resting on generic database complaints, and in R.G. 4821/2022 of 20 October 2025 TEAC placed profitability at the first quartile. Secret comparables have been ruled out by the courts, no preference exists for domestic comparables, and neither search geography nor the tested-party concept is codified.
Documentation: what AEAT expects
Spain separates three obligations that groups routinely conflate. Documentation is held, not filed. Country-by-country data goes on Modelo 231. Related-party disclosure goes on Modelo 232, independently, so a taxpayer below every documentation threshold can still owe a return.
The master file (article 15) covers group structure, activities, intangibles, financing and tax position, including supply chains representing at least 10 per cent of group turnover, and is required only at EUR 45 million of group net turnover under article 101 LIS. The local file (article 16.1) is demanding: management structure, who receives reports on the Spanish entity and where they are resident, business strategy, restructurings and intangible transfers, main competitors, the comparability analysis, the method and reasons, comparables and resulting range, and a reconciliation between the data used and the statutory accounts. Below EUR 45 million it shrinks to the short form in article 16.4; small entities may instead complete Annex V to Orden HAP/871/2016. Neither simplification reaches transfers of businesses, real property, intangibles or unlisted securities.
No documentation is required where aggregate consideration with one related party stays at or below EUR 250,000, nor inside a tax consolidation group, nor within a public offer. Article 37 of the Regulation withdraws only the EUR 250,000 relief for tax haven counterparties — letter (a) disapplies article 13.3(d) alone, leaving the consolidation and public-offer exemptions in article 13.3(a) and (c) intact — and letter (b) switches that override off where the related party is resident in an EU or EEA State with effective exchange of information and the taxpayer proves valid economic motives and real economic activity. Read the statutory "paraísos fiscales" as "jurisdicciones no cooperativas": the tenth additional provision to Ley 36/2006, inserted by article 16.2 of Ley 11/2021, redirects the term to the list in Orden HFP/115/2023, even though articles 18.3 LIS and 37 RIS keep the older wording. Documentation must exist from the end of the voluntary filing period, late July of the following year for a calendar-year taxpayer. It is produced on request, article 87.4 of Real Decreto 1065/2007 guaranteeing at least ten days, counted in working days.
Country-by-country reporting bites at EUR 750 million of group turnover in the twelve months preceding the period, is due within twelve months of period end, and needs a separate notification of the reporting entity before that period closes. Modelo 232 is triggered above EUR 250,000 with one related party, above EUR 100,000 in any specific-transaction category, or where same-type transactions priced by the same method exceed 50 per cent of net turnover; tax haven items report regardless of amount, in the month following the tenth month after period end.
Audits, penalties and the enforcement climate
The penalty architecture rewards documentation and punishes its absence. Article 18.13.3 removes the ordinary underpayment penalties of articles 191, 192, 193 and 195 of the General Tax Law for the portion of the base adjusted, provided the documentation obligation was met. Miss it and, absent a valuation adjustment, article 18.13.1 charges EUR 1,000 per omitted or false datum and EUR 10,000 per set, applied separately to master and local file, capped at the lower of 10 per cent of related-party transaction volume and 1 per cent of net turnover. Where an adjustment is made and documentation was defective, or the declared value departs from the documented value, the fine is 15 per cent of the adjustment. Modelo 232 carries its own regime, and the two halves are often confused: filing late is an article 198 infringement at EUR 20 per datum, minimum EUR 300 and maximum EUR 20,000, halved on unprompted late filing, whereas a return filed on time but incomplete, inexact or false falls under article 199.5, which because the form reports monetary magnitudes runs to 2 per cent of the amounts not or wrongly declared, with a EUR 500 minimum.
Procedurally, article 18.12 runs the check inside the audit of one party, notifies the others so they can join or appeal, and makes the final assessment effective against them. Article 18.10 forbids taxing, across the parties as a whole, more than the income actually derived. And article 18.12.6 excludes article 135 of the General Tax Law, so the tasación pericial contradictoria is unavailable against a transfer pricing valuation. Article 18.11 then imposes a secondary adjustment characterised by the income revealed, usually a deemed distribution or capital contribution up to the shareholding percentage, escapable only by an evidenced patrimonial restitution before the assessment issues. The window is four years, extended in substance by the ten-year verification period for carried-forward attributes under article 66 bis.
The climate is not softening. The 2026 control plan guidelines, approved 11 March 2026, name business restructurings, intra-group asset transfers, royalties, recurring losses and related-party financing, adding that documentation will be tested substantively and Modelo 232 mined for case selection.
Dispute resolution and advance certainty
Article 18.9 lets taxpayers fix market value in advance, with Real Decreto 634/2015 splitting the machinery between unilateral agreements (articles 21 to 30) and those involving another administration (articles 31 to 36). A preliminary approach precedes formal filing, and no fee appears in the statute, the regulation or AEAT's procedure sheet. An agreement covers the current period plus up to four following ones, and may be extended backwards to transactions in periods still open and not covered by a final assessment. The procedure should close in six months, with negative silence on expiry; neither the decision nor a deemed rejection is appealable. Information supplied is ring-fenced from audit use and returned if the application fails.
Competent authority allocation matters for bilateral work. Transfer pricing and profit attribution go to AEAT's Oficina Nacional de Fiscalidad Internacional; residence, permanent establishment existence, characterisation and treaty interpretation go to the Dirección General de Tributos, which also coordinates mixed cases. The framework is Real Decreto 1794/2008 as amended by Real Decreto 399/2021, transposing Directive 2017/1852 and adding BEPS Action 14 measures and a four-week duty to notify other authorities. Treaty MAP, the EU Arbitration Convention and the Directive procedure coexist, with arbitration through an advisory commission on deadlock.
Domestically, an assessment meets an optional recurso de reposición within one month, then the economic-administrative claim to TEAR or TEAC, the Audiencia Nacional within two months, and the Supreme Court on admitted cassational interest. That last rung is producing doctrine: judgment 985/2025 held that physical zero-balance cash pool flows are short-term intra-group loans, that rates on contributions and drawings must be symmetric, and that the group supplies the credit rating. Signatories of the Código de Buenas Prácticas Tributarias may also submit documentation voluntarily about six months after the filing deadline, buying early risk analysis and written AEAT guidance.
Pillar Two and what changes in 2026
Ley 7/2024 introduced the Impuesto Complementario, transposing Directive (EU) 2022/2523, effective for periods beginning on or after 31 December 2023, with the undertaxed profits rule a year later. Scope uses a EUR 750 million consolidated turnover test met in at least two of the four preceding periods, which is deliberately not the country-by-country test in article 14 of the Regulation, measured over the twelve months preceding the period. Conflating them is expensive. The charge has three layers: a domestic top-up tax, the income inclusion rule on parents and the undertaxed profits backstop, all measured against a 15 per cent floor.
Real Decreto 252/2025 gave the regulation and Orden HAC/1198/2025 the forms: Modelo 240 identifying the filer, Modelo 241 the information return due by the last day of the fifteenth month after period end, and Modelo 242 the self-assessment 25 days later. For periods ending before 31 March 2025, Modelos 240 and 241 fall due by 30 June 2026. The transfer pricing consequence is direct: transitional disposition four builds the country-by-country safe harbour on a qualifying CbC report defined by reference to articles 13 and 14 of the Regulation, at transitional rates of 15 per cent for 2023 and 2024, 16 per cent for 2025 and 17 per cent for 2026. A CbC file assembled loosely for exchange now carries top-up tax consequences. On Amount B, no Spanish implementing measure has been located; baseline distribution therefore remains priced under article 18, though that is an absence of evidence and should be re-checked.
How practitioners should respond
Four priorities follow. Treat the local file as an asset: article 18.13.3 protection exists only if it is complete by the end of the filing period, and article 16.1 is the specification against which completeness is judged. Build benchmarks to survive the median argument, documenting the selection process, each rejection and the tested entity's functional profile, because the Audiencia Nacional and TEAC line rewards taxpayers who force the administration to identify concrete comparability defects. Reconcile the corporate return's market-value boxes, Modelo 232 and Modelo 231 before any is filed, since the 2026 plan says openly that Modelo 232 drives selection and inconsistency is the cheapest audit trigger a group can hand over — and note that an inaccurate Modelo 232 filed on time is punished proportionally under article 199.5, not by the flat late-filing scale. And use advance certainty where exposure justifies it: no fee, a four-year term, real rollback into open years and information ring-fenced from audit use make the Spanish APA well suited to exactly the restructurings, intangible migrations and financing arrangements the control plan names.
