On 6 March 2019, the Chamber for Administrative Disputes at Spain's National Court issued a judgment partially upholding the appeal filed by a taxpayer against the transfer pricing adjustments made by the tax Inspectorate.

The tax Inspectorate had adjusted the operating margin obtained by the taxpayer (a multinational company engaged in the wholesale distribution of movable assets in Spain), given that, in the Inspectorate's opinion, the profitability (in terms of operating margin) obtained by the company did not meet the arm’s length principle for the fiscal years being audited.

The taxpayer's operating margin: (i) fell outside the arm’s length range (interquartile range) in one of the fiscal years; and (ii) fell within arm’s length range but was below the median for the other fiscal year. 

The tax Inspectorate used the median to adjust the operating margin of the taxpayer for both fiscal years using the benchmarking of comparable companies that the taxpayer provided in its transfer pricing documentation.

The Central Tax Court (court that issued the previous/initial judgement) partially upheld the taxpayer's appeal, deeming that no adjustment was needed for those years where the operating margin was within the arm’s length range (the interquartile range in this particular case). OECD Transfer Pricing Guidelines recommends such criterion and the National Court confirms it in this judgment.

In addition, with regard to the other adjustment made to the taxpayer's operating margin (which fell outside the arm’s length range), the National Court's judgment ruled in favour of the taxpayer's appeal. Said judgment concluded that the taxpayer's operating margin should be adjusted to the lowest value of the arm’s length range (lower quartile). The Court felt that the Inspectorate had not evidenced a comparability defect with regard to the taxpayer's benchmarking that would justify the Inspectorate's decision to use the median as the relevant reference point in the arm’s length range.

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