International Tax Compliance

International tax issues do not always come to light before a transaction is executed. Sometimes they arise afterward: when reviewing closed fiscal years, preparing for an audit, receiving a tax notice, detecting improperly handled international payments, or discovering that a cross-border structure was not properly documented.

International tax compliance requires a precise reconstruction of what happened. What transaction took place, which companies were involved, what tax returns were filed, what withholdings were made, which tax treaty was applied, what documentation exists, and which tax years may be affected. Taking action without this review may result in incomplete answers or new inconsistencies.

This page is part of the international tax attorneys and focuses on companies, groups, corporations, investors, and international structures that need to organize their existing tax positions.

Advice on organizing previously executed international tax positions

An international tax adjustment should not be treated as an automatic process. Before correcting tax returns or responding to the tax authorities, it is necessary to identify the relevant facts, the applicable regulations, and the available documentation.

The General Tax Law establishes the general framework for tax obligations and tax enforcement procedures in Spain.

The General Regulations on Tax Administration and Inspection Procedures may also be relevant, especially when there are ongoing audits, demands, or administrative proceedings.

In international taxation, the complexity increases because a single situation may involve Spanish regulations, foreign regulations, tax treaties, withholding taxes, corporate documentation, and criteria applied across multiple fiscal years.

When International Tax Compliance May Be Necessary

The need to bring matters into compliance may arise from a business decision that has already been implemented, a poorly documented cross-border transaction, a tax return filed with incomplete information, or a notice from the tax authority.

Cross-border Transactions and Previous Declarations

An international transaction may have been reported incompletely or classified in a way that later proves to be disputable. This can occur in connection with payments for services, financing, royalties, dividends, capital gains, reorganizations, acquisitions, or sales of companies.

If the root of the problem lies in where a company or structure is tax-resident, the international tax residency may be the first point of analysis. In acquisitions or sales that have already taken place, the tax treatment of international business sales may require a specific review if the risk stems from the corporate transaction.

The regularization process must take into account facts, contracts, statements, payments, residence, relevant jurisdictions, and supporting documentation.

Withholding taxes, tax treaties, and double taxation that has already occurred

For international payments of dividends, interest, royalties, or services, the international withholdings may be the cause of the tax adjustment. The company may have applied an incorrect withholding rate, failed to apply a available reduction, or used criteria without sufficient documentation.

It may also be the case that a double taxation treaty was applied without properly verifying residency, the beneficiary, the nature of the income, or the documentation requirements. The Double taxation treaties may be relevant, but they must be analyzed in conjunction with the actual transaction.

When the tax adjustment arises from income taxed in two countries, the international double taxation must be reviewed along with the available documentation.

Permanent Establishment, Transfer Pricing, and Foreign Investment

When a foreign entity has already been operating in Spain without reviewing its tax status, the permanent establishment in Spain may be one of the key issues. In such cases, the actual activity, resources, contracts, personnel, agents, and the relevant tax years must be analyzed.

If the exposure arises from intragroup transactions, the transfer pricing in related-party transactions and the supporting documentation may influence the strategy. Services, financing, licenses, cost-sharing arrangements, or payments between related entities must be reviewed against market criteria and supported by documentation.

Once the investment in Spain has been made without reviewing the vehicle, financing, or reporting requirements, the foreign investment in Spain may require a parallel review.