Related-Party Transactions: What They Are and Who Is Required to File. When Must They Be Reported?

Related-party transactions have come under close scrutiny from the tax authorities, which regard them as potential devices for tax fraud. Related-party transactions are commercial dealings carried out by individuals or legal entities that are linked to each other in some way and, in an effort to prevent tax fraud, they must be reported on Form 232. Do you know whether you are required to file?

What is a related-party transaction?

Related-party transactions are transactions with economic content carried out between entities or individuals. The following are considered related persons or entities:

– An entity and its shareholders or members.

– An entity and its board members or directors, except with respect to remuneration for the performance of their duties.

– An entity and the spouses of its shareholders or members, board members, or directors, or persons related to them by blood or marriage, in the direct or collateral line, up to the third degree.

– Two entities belonging to a group.

– An entity and the board members or directors of another entity, where both entities belong to a group.

– An entity and another entity in which the first indirectly holds at least 25% of the share capital or equity.

– Two entities in which the same shareholders or members, or their spouses, or persons related to them by blood or marriage, in the direct or collateral line, up to the third degree, hold, directly or indirectly, at least 25% of the share capital or equity.

– An entity resident in Spanish territory and its permanent establishments abroad.

Who is required to file the official form?

The following are required to file the official form and complete the information on transactions with related persons or entities: Corporate Income Tax (IS) taxpayers, Non-Resident Income Tax (IRNR) taxpayers operating through a permanent establishment, and entities under the income attribution regime (entidades en régimen de atribución de rentas) formed abroad with a presence in Spanish territory, where they carry out the following transactions with related persons or entities:

– Transactions carried out with the same related person or entity, provided that the total consideration for all such transactions in the tax period exceeds €250,000, based on market value.

– Specific transactions, provided that the aggregate amount of each of these transactions in the tax period exceeds €100,000.

– Where there are transactions of the same type that also use the same valuation method, provided that the total amount of those transactions in the tax period exceeds 50% of the entity’s turnover.

– Where the reduction for income from certain intangible assets is applied, as a result of having obtained income from the assignment of certain intangible assets to related persons or entities.

– Where the taxpayer carries out transactions or holds securities in countries or territories classified as tax havens, regardless of their amount.

When is it not mandatory to complete the information on transactions with related persons or entities in Form 232?

It is not mandatory with respect to the following transactions:

1. Those carried out between entities forming part of the same tax consolidation group, without prejudice to the provisions of Article 65.2 of the Corporate Income Tax Law (LIS).

2. Those carried out by economic interest groupings (agrupaciones de interés económico), temporary business associations (uniones temporales de empresas), and regional industrial development companies (sociedades de desarrollo industrial regional) with their members or with other entities forming part of the same tax consolidation group. However, temporary business associations, or collaboration arrangements similar to temporary business associations, that apply the regime established in Article 22 of the LIS must file Form 232.

What is the filing deadline for the official form?

Form 232 must be filed during the eleventh month following the end of the tax period. In other words, for companies whose fiscal year ends on December 31, the filing period for Form 232 runs from November 1 to November 30 of each year.

The form must be filed electronically through the e-office (sede electrónica) of the Spanish Tax Agency (AEAT), and must contain information on:

– Transactions with related persons or entities.

– Transactions with related persons or entities where the reduction for income from certain intangible assets (Patent Box) is applied.

– Transactions and situations involving countries or territories considered tax havens.

How is Form 232 filed?

It must be filed electronically, either through the e-office of the AEAT or from the Tax Agency’s website. Filing may be carried out by:

– The taxpayers subject to the tax or, where applicable, their legal representatives.

– Voluntary representatives of taxpayers (obligados tributarios) holding powers or authority to file tax returns and self-assessment returns electronically on their behalf with the Tax Agency or to represent them before it.

– Persons or entities that hold the status of social collaborators (colaboradores sociales) in the application of taxes.

Can the Tax Agency verify the valuations of the related-party transactions reported?

The tax authorities may verify that the reported transactions between related persons or entities have been valued at their normal market value and will, where appropriate, make the relevant valuation adjustments with respect to transactions subject to this tax, to Personal Income Tax (IRPF), or to Non-Resident Income Tax that have not been valued at their normal market value, on the basis of the documentation provided by the taxable person and the data and information available to them.