What are related-party transactions?

Related-party transactions are commercial dealings carried out between individuals or legal entities that have some kind of link with one another. In an effort to prevent tax fraud, they must be reported on Form 232 (Modelo 232). Do you know whether you are required to file it?

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 as regards the 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 direct-line or collateral kinship, by blood or by marriage, up to the third degree.

– Two entities that belong to a group.

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

– An entity and another entity in which the former 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 direct-line or collateral kinship, by blood or by marriage, 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 Form 232?

The following are required to file Form 232 and complete the information on transactions with related persons or entities: Corporate Income Tax (IS) taxpayers and Non-Resident Income Tax (IRNR) taxpayers operating through a permanent establishment, as well as entities subject to the income attribution regime (entidades en régimen de atribución de rentas) incorporated abroad with a presence in Spanish territory, that carry out the following transactions with related persons or entities within the meaning of Article 18.2 of the Corporate Income Tax Law (LIS):

– 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, measured at market value.

– Specific transactions, provided that the aggregate amount of each type 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 aggregate amount of those transactions in the tax period exceeds 50% of the entity’s revenue.

– Where the reduction of income from certain intangible assets is applied, because income has been obtained from the licensing of certain intangibles to related persons or entities.

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

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

It is not mandatory for the following transactions:

1. Transactions carried out between entities that form part of the same tax consolidation group, without prejudice to the provisions of Article 65.2 of the LIS.

2. Transactions carried out by economic interest groupings (agrupaciones de interés económico), temporary joint ventures (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 joint ventures, or collaboration arrangements similar to temporary joint ventures, that apply the regime established in Article 22 of the LIS must file Form 232.

What is the filing deadline for Form 232?

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

It must be filed electronically through the electronic office of the Spanish Tax Agency (AEAT), and it must contain information on:

– Transactions with related persons or entities.

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

– Transactions and situations relating to countries or territories regarded as tax havens.

How is Form 232 filed?

It must be filed electronically, either through the AEAT’s electronic office or from the Tax Agency’s website. It may be filed by:

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

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

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

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. Where appropriate, they will make the relevant valuation adjustments to transactions subject to this tax, Personal Income Tax (IRPF), or 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.