Newsletter TPS – March 2023

National Court Partially Accepts Universal Pictures International Spain’s Appeal Against Tax Assessment on Transfer Pricing Methodology

The National Court in Spain has partially accepted the appeal made by Universal Pictures International Spain SL against a tax assessment made by the Spanish tax authority regarding its transfer pricing methodology. Universal Group’s business activities included the marketing and distribution of feature films through its distribution arm, which was organised by different regions. In Europe, a Dutch company sublicensed the distribution rights in each market, including Spain, through Universal Pictures International Spain SL.

The tax authority acknowledged that the risk assumed by the Spanish company as a distributor of Universal Group was limited, while the risk assumed in distribution of other producers’ films was complete. The National Court found that the Spanish tax authority could not prove the existence of similar internal comparable transactions to apply the Comparable Uncontrolled Price (CUP) Method. The court rejected the comparability of the transactions with unrelated parties due to the existence of differences in the assumption of risks.

However, the National Court also rejected the comparables selected by the appellant that considered entities operating in foreign markets, citing differences in production costs and consumer purchasing power between the Spanish and foreign markets.

The decision, SAN 5855/2022 – ECLI:ES:AN:2022:5855, was issued on 7 December 2022, but made public only recently. The decision can be appealed before the Spanish Supreme Court within 30 days of notification of the decision.