The Canary Islands, an autonomous community of Spain with a unique fiscal regime, are subject to Spain’s national laws on tax matters while benefiting from specific incentives as part of their Economic and Fiscal Regime (REF). However, when it comes to international tax compliance, including Country-by-Country Reporting (CbCR), multinational enterprises (MNEs) operating in or through the Canary Islands are subject to the same regulations as those elsewhere in Spain, in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. This guide aims to inform finance directors of MNEs operating in the Canary Islands about whether the CbCR regulations apply to their companies, how to comply, the penalties for non-compliance, and where to find additional resources.

Applicability of CbCR in the Canary Islands

Criteria for Reporting:

• The CbCR regime applies to multinational enterprise (MNE) groups that meet the following conditions:
  • The group’s consolidated revenue exceeds €750 million in the previous fiscal year.
  • The ultimate parent entity (UPE) of the group is a tax resident in Spain (which includes the Canary Islands).
  • Constituent entities in the Canary Islands may also be required to submit the CbC report if:
    • The UPE is located in a jurisdiction that does not require CbCR,
    • The UPE’s jurisdiction does not have an agreement with Spain for the automatic exchange of CbC reports,
    • There has been a failure in exchanging the CbC report with Spain.

Relevant Legislation:

• The CbCR requirements in the Canary Islands are based on Law 27/2014, which is Spain’s Corporate Income Tax Law, as amended to align with the OECD’s BEPS Action 13. The local tax authority responsible for ensuring compliance is the Agencia Tributaria Canaria (Canary Islands Tax Agency), in collaboration with the Spanish national tax authority (Agencia Estatal de Administración Tributaria, AEAT).

Reporting Requirements

Information to be Reported:

• The CbC report requires MNE groups to disclose detailed information on a jurisdictional basis, including:
  • Total revenue (split between related and unrelated party revenue),
  • Profit or loss before income tax,
  • Income tax paid and accrued,
  • Stated capital and accumulated earnings,
  • Number of employees,
  • Tangible assets, excluding cash and cash equivalents.
• The report must also identify each constituent entity within the group, the jurisdiction of tax residence, and the main business activity of each entity.

Form and Submission:

• The CbC report must be filed in electronic format using the OECD’s standard XML schema, ensuring that the data can be easily shared between tax authorities.
• In the Canary Islands, the report is submitted through the AEAT’s electronic filing system, which ensures that all tax obligations are centrally managed within Spain. For more information on filing the report, visit the AEAT website: Agencia Tributaria – CbCR.

Filing Deadlines

• The CbC report must be submitted within 12 months following the last day of the reporting fiscal year of the MNE group. For example, if the fiscal year ends on 31 December 2023, the report must be filed by 31 December 2024.
• Additionally, constituent entities in the Canary Islands must notify the tax authority of the identity of the entity responsible for submitting the CbC report (the UPE or surrogate parent entity) before the end of the fiscal year.

Penalties for Non-Compliance

Penalties:

• The failure to submit the CbC report or providing inaccurate information can result in significant penalties, including:
  • A fine of up to €250,000 for failure to file the report by the deadline.
  • Penalties for failure to notify the tax authorities of the reporting entity’s identity or for providing incorrect or incomplete information.
  • Additional sanctions may be imposed for repeated or intentional non-compliance with CbCR obligations.

Defences:

• MNEs may appeal against penalties by demonstrating that non-compliance was due to reasonable cause (e.g., technical difficulties or exceptional circumstances). However, tax authorities expect companies to have systems in place to ensure timely compliance with their reporting obligations.

Confidentiality and Use of Information

Data Protection:

• CbC reports filed by MNEs in the Canary Islands, like in the rest of Spain, are subject to strict confidentiality standards. The information in the report is used exclusively for risk assessment purposes and to assist in tax audits.
• Spain is part of the automatic exchange of information framework under the OECD’s BEPS Action 13, meaning that the CbC report will be shared with other tax jurisdictions that have signed relevant agreements and meet the OECD’s confidentiality standards.