A few weeks ago we commented on the deductibility of the so-called intra-group services for corporate income tax purposes and the requirements established by the Corporate Income Tax Law in its article 18.5, with special mention to the requirement that such services rendered produce or may produce an advantage or utility to the recipient. We concluded that, if proving the reality of the service rendered can be difficult in certain categories, proving that an advantage or utility has been produced for the taxpayer can already be a mammoth effort.
The purpose of the article was simply to draw attention to the risk involved in deducting, for corporate income tax purposes, expenses invoiced by a related party for services rendered. We often find that these invoices refer to ambiguous and indeterminate concepts, such as storage services, transport during the year, administrative expenses, etc., without further explanation or documentation to justify the reality of these services or the advantage or usefulness for the taxpayer who intends to deduct them. In this sense, in most cases the provisions of the current Invoicing Regulation are not even respected, as regards the description of the operations, the inclusion of all the necessary data for the determination of the VAT taxable base, and also as regards the unit price of such operations.
The Spanish courts usually consider the non-deductibility of these services because neither the effective existence of the service nor the benefit to the company that supposedly receives it has been demonstrated, and therefore the charge is not admitted as deductible, based on the principle of correlation of income and expenses.
Although the subject matter is very extensive and not exhaustive in this article, we would like to give a few hints on those points that may help to understand how to prove that the recipient of the services has obtained an advantage or profit from such intra-group services.
According to the OECD Guidelines, the first point to take into account is the need for there to be an economic or commercial interest for the entity receiving the service. This requirement is deemed to be met when an independent company in comparable circumstances would have demanded such a service, either from an external company or by developing it itself. On the other hand, it should not be a duplicate service, unless this happens only temporarily or on an ad hoc basis or when the service is duplicated to avoid making unwise decisions. Regarding payment, it should be taken into account what is the usual method of payment between independent companies. It should also be borne in mind that the existence of a payment between group companies does not determine that an intra-group service actually exists and likewise, the non-existence of payment does not mean that it does not exist.
All the above is nothing more than a simple outline of this matter, and as stated at the beginning, the only purpose is to draw attention to the tax risks involved in this type of expenses, as well as to give a few hints on how to demonstrate the reality and usefulness of the same at the recipient's premises.
At Confialia, thanks to our process management and our investment in technology, we are prepared to detect this type of operations and to generate in a preventive way all the supporting documentation for them, so that, when the time comes, their justification is as accurate as possible.
INTRA-GROUP SERVICES AND THEIR JUSTIFICATION (II)
