TRANSACTIONS BETWEEN RELATED PARTIES September 2010

1. TRANSACTIONS BETWEEN RELATED PARTIES September 2010 NAVARRO ABOGADOS September 2010

2. TRANSACTIONS BETWEEN RELATED PARTIES. Preliminary. • NEW: The tax payer is in all cases obliged to valuate the transactions between the related companies at the market price. • NEW: Obligation of documentation related to the Group to which the tax payer may belong. MASTER FILE. • NEW: Obligation of documentation of the tax payer specific for each country. COUNTRY SPECIFIC FILE. • APPLICABLE LEGAL DOCUMENTATION. • Law 16/2007 to amend and adapt the mercantile legislation as regards accounting for its international harmonization based on the European Union regulations. • Royal Decree 4/2004 of the Law of the Companies Tax. • Council Resolution dated 27/06/2006 related to a (non-binding) Code of Conduct on documentation related to transfer prices required by the associated companies in the EU. • Royal Decree 1777/2004of the Companies Tax Regulations. NAVARROABOGADOS September 2010

3. 1. RELATED INDIVIDUALS OR COMPANIES. DEFINITION. NAVARRO ABOGADOS September 2010

4. 1. RELATED INDIVIDUALS OR COMPANIES. DEFINITION. DEFINITION. • The scope of individuals or companies whose transactions are considered as related, is extended. • A group exists if a company controls or may control another company or companies, regardless of their residence and the obligation to prepare consolidated accounts. • Principally, the following are considered as related individuals or companies: • A company and (i) its partners or stakeholders; (ii) its officers and directors; (iii) the spouses or relatives up to the 3rd degree of partners, stakeholders, officers or directors. • Two companies belonging to the same group. A company and (i) the partners or stakeholders of another company of the group; (ii) the officers and directors of another company of the group; (iii) the spouses or relatives up to the 3rd degree of partners, stakeholders, officers or directors of another company of the group. • A company and another company indirectly controlled by the former in at least 25 per 100 of the stock capital or the shareholders’ equity. Two companies where the partners holders or their spouses or persons related thereto by relationship, directly or collaterally, by consanguinity or affinity up to the third degree, may hold, directly or indirectly, an interest of at least 25 per 100 of the stock capital or the shareholders’ equity. • A company residing in the Spanish territory and its permanent establishments abroad. A company not residing in the Spanish territory and its permanent establishments in such territory. The relation defined according to the partner condition requires a corporate interest equal or higher than 5% (1% in listed companies) NAVARRO ABOGADOS September 2010

5. 2.- VALUATION OF TRANSACTIONS BETWEEN RELATED PARTIES. MARKET VALUE. NAVARRO ABOGADOS September 2010

6. 2.1. MARKET VALUE. MANDATORY NATURE. MANDATORY NATURE. • The tax payer is in all cases obliged to valuate the transactions between related companies at the market price. • Former regulations did not provide such obligation for the tax payer. • Former regulations provided the possibility for the State Tax Administration “AEAT” to valuate such transactions at the market price if a lower taxation in Spain or a tax deferment resulted from the valuation agreed between the parties. •   The AEAT may be asked to determine the valuation of transactions between related parties before they are carried out. Such request shall be accompanied by a proposal based on the ordinary market value. Documentation to be submitted with such request is regulated in Royal Decree 1793/2008, under which the Companies Tax Regulations are amended. NAVARRO ABOGADOS September 2010

7. 2.2. MARKET VALUE. METHODS. Methods to determine the market value. • Comparable uncontrolled price method (CUP):It compares the price of goods or services in a certain transaction between related companies with the price of equal or similar goods or service in transactions between independent companies under comparable circumstances, making, if any, the necessary corrections to obtain the equivalency. • Comparable profits method (CPM): The usual margin in identical or similar transactions with independent individuals or companies or, in the absence thereof, the margin applied by independent entities to comparable transactions, is added to the acquisition value or production cost of the good or service (especially appropriate to valuate transactions the object of which are unfinished products or services), making, if any, the necessary corrections to obtain the equivalency. • Resale price method (RPM): The margin applied by the reseller in identical or similar transactions with independent individuals or companies or, in the absence thereof, the margin applied by independent entities to comparable transactions, is deducted from the sale price of the good or service (especially appropriate to valuate transactions in sale and distribution activities where the supplier and the reseller are related parties), making, if any, the necessary corrections to obtain the equivalency. • When due to complexity or the information regarding the transactions, the methods above cannot be used, the following shall apply: (i) Profit split method:it allocates the aggregate result of the transaction between the parties involved, taking into account the conditions that independent parties would agree for similar transactions); (ii) Transactional net margin method: the transactions carried out with a related company are assigned the net profit or loss calculated on costs, sales or the most appropriate concept according to the characteristics of the transactions, which the tax payer or third parties would have made in identical transactions carried out between interdependent parties, making, if any, the necessary corrections to obtain the equivalency. NAVARRO ABOGADOS September 2010

8. 2.3. ANALYSIS OF COMPARABILITY. To determine if two or more transactions are comparable, the following aspects shall be taken into account: • The specific characteristics of the goods or services subject matter of the related transactions. • The duties assumed by the parties in relation to the transactions, identifying the risks assumed and weighing, if any, the assets used. • The contractual terms from which, if any, the transactions may be derived, considering the liabilities, risks and benefits assumed by each contracting party. • The characteristics of the markets where the goods are delivered or the services rendered, or other economic factors which may affect the related transactions. • Any other circumstance that may be pertinent, in each case, such as commercial strategies. • In the absence of details on comparable transactions of independent companies or if reliability of those available may be limited, the tax payer shall document such circumstances. • Furthermore, if any of the aforementioned circumstances has not been take into account because the tax payer considers that it is not pertinent, the tax payer shall mention the reasons why such circumstances are excluded from the analysis. • The analysis of comparability and the information on comparable transactions are the factors that will determine the most appropriate valuation method. NAVARROABOGADOS September 2010

9. 3. OBLIGATION OF DOCUMENTATION. NAVARRO ABOGADOS September 2010

10. 3. OBLIGATION OF DOCUMENTATION. 3.1  Obligation of documentation of the group to which the tax payer belongs pursuant to Royal Decree 1793/2008. MASTER FILE. Documentation related to the group includes: • GENERAL DESCRIPTION OF THE ORGANIZATIONAL, LEGAL AND OPERATING STRUCTURE OF THE GROUP, as well as any significant change therein. • IDENTIFICATION OF THE DIFFERENTE COMPANIES THAT, BEING MEMBERS OF THE GROUP, MAY CARRY OUT RELATED TRANSACTIONS, to the extent they directly or indirectly affect the transactions carried out by the tax payer. • GENERAL DESCRIPTION OF THE NATURE, AMOUNTS AND FLOWS OF THE RELATED TRANSACTIONS between companies of the group, to the extent they may directly or indirectly affect the transactions carried out by the tax payer. • GENERAL DESCRIPTION OF THE DUTIES PERFORMED AND THE RISKS ASSUMED by the different companies of the group, to the extent they may directly or indirectly affect the transactions carried out by the tax payer, including changes with respect to the previous tax or liquidation period. NAVARRO ABOGADOS September 2010

11. 3. OBLIGATION OF DOCUMETNATION. e)A LIST OF TITLES OF PATENTS, TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLE ASSETS, to the extent they may directly or indirectly affect the transactions carried out by the tax payer, AS WELL AS THE AMOUNTS OF THE CONSIDERATIONS RESULTING FROM THEIR USE. • A DESCRIPTION OF THE GROUP POLICY ON TRANSFER PRICES, INCLUDING THE METHOD OR METHODS ADOPTED BY THE GROUP TO ESTABLISH SUCH PRICES, WHICH JUSTIFIES ITS ADEQUACY TO THE ARMS-LENGTH PRINCIPLE. • LIST OF COST SHARING AGREEMENTS AND SERVICES AGREEMENT BETWEEN COMPANIES OF THE GROUP, to the extent they may directly or indirectly affect the transactions carried out by the tax payer. • LIST OF PRELIMINARY VALUATION AGREEMENTS OR AMICABLE PROCEDURES ENTERED INTO OR IN PROCESS regarding companies of the group, to the extent they may directly or indirectly affect the transactions carried out by the tax payer. • THE ANNUAL REPORT OF THE GROUP OR OTHERWISE AN EQUIVALENT REPORT. NAVARRO ABOGADOS September 2010

12. 3. OBLIGATION OF DOCUMENTATION. 3.2 Obligation of documentation of the tax payer pursuant to Royal Decree 1793/2008. COUNTRY SPECIFIC FILE. The specific documentation of the tax payer shall include: • NAME AND SURNAMES OR CORPORATE NAME OR COMPLETE NAME, FISCAL ADDRESS AND TAX IDENTIFICATION NUMBER OF THE TAX PAYER AND THE INDIVIDUALS OR COMPANIES WITH WHOM THE TRANSACTION IS CARRIED OUT, AS WELL AS A DETAILED DESCRIPTION OF ITS NATURE, CHARACTERISTICS AND AMOUNT. Furthermore, in the event of transactions carried out with individuals or companies residing in countries or territories considered as tax heavens, the persons who, in the name of such individuals or companies, may have taken part in the transaction shall be identified and, for transactions with companies, their directors shall be also identified. • ANALYSIS OF COMPARABILITY (as provided in 2.3). • AN EXPLANATION ON THE SELECTION OF THE VALUATION METHOD CHOSEN, INCLUDING A DESCRIPTION OF THE REASONS THAT JUSTIFIED SUCH SELECTION, AS WELL AS ITS APPLICATION AND THE SPECIFICATION OF THE VALUE OR INTERVAL OF VALUES DERIVED THEREFROM. NAVARRO ABOGADOS September 2010

13. 3. OBLIGATION OF DOCUMENTATION. • CRITERIA OF EXPENSE ALLOCATION FOR SERVICES JOINTLY RENDERED in favour of several related individuals or companies, as well as the relevant agreements, if any, AND COST SHARING AGREEMENTS. • ANY OTHER RELEVANT INFORMATION used by the tax payer to determine the valuation of its related transactions, AS WELL AS ANY AGREEMENTS ENTERED INTO WITH OTHER PARTNERS ON VOTING RIGHTS AND SHARE TRANSFEREABILITY (“PACTO PARASOCIAL”). NAVARROABOGADOS September 2010

14. 3. OBLIGATION OF DOCUMENTATION. 3.3 Common notes to obligations of documentation specified in sections above (3.1 and 3.2). The tax payer shall submit, at the request of the Tax Administration, the documentation specified in 3.1. and 3.2., which shall be available for the Tax Administration upon termination of the voluntary tax return or liquidation period. The obligations of documentation shall refer to each tax period where the tax payer had carried out the transaction between related parties. Documentation in 3.1 and 3.2. shall not be required for the following transactions between related parties: • Transactions carried out by companies with a turnover in the period lower than 8.000.000€, provided that the total of transactions between related parties in the period does not exceed the aggregate amount of 100.000€ at the market value. • Transactions carried out by companies that have chosen to pay taxes under the special system of consolidated Group in the Corporate Tax. • Transactions carried out with a related natural or legal person, when the total amount of transactions therewith does not exceed 250.000€ at the market value (not applicable to certain transactions, such as transfers of businesses, unlisted shares, real estate, intangible assets, etc.). • Obligations of documentation referred in 3.1. shall not be required for such Groups of companies considered as small-sized, i.e., with a turnover lower than 8.000.000 Euros. The obligations of documentation in 3.2 (Country Specific File) shall not be fully required when one of the parties taking part in the transaction is considered as a natural person or a company with a turnover lower than 8.000.000 Euros. In these cases, only a part of the aforementioned documentation (see section 3.2) shall be required, depending on the type of transaction carried out. NAVARROABOGADOS September 2010

15. 4. SECONDARY ADJUSTMENT. NAVARRO ABOGADOS September 2010

16. 4. SECONDARY ADJUSTMENT. When the value agreed upon for transactions between related parties is not considered as a market value, the difference between both values shall be assigned, for related individuals or companies, the appropriate tax treatment according to the nature of income arisen as a result of the difference of valuation. For example, a difference of value arisen in favour of a partner in transactions between a company and its partners, in the part corresponding to the interest percentage in the company, shall be considered, regarding the company, as a stockholders´equity contribution and regarding the partner, as a profit sharing. In the same case, the difference of value that may not correspond to the interest percentage in the company shall be considered, regarding the company, as a stockholders ´equity contribution and regarding the partner, as a profit derived from its condition as partner. Similarly, a difference of value arisen in favour of the company in transactions between a company and its partners, in the part corresponding to the interest percentage in the company, shall be considered, regarding the company, as a stockholders´equity contribution and regarding the partner, as a higher value of its corporate interest. In the same case, the difference of value that may not correspond to the interest percentage in the company shall be considered, regarding the company, as an income and regarding the partner, as a donation. In any other cases, the tax qualification shall be determined according to the nature of income arisen. NAVARRO ABOGADOS September 2010

17. 5. PENALTIES. EFFECTIVE DATE AND TEMPORARY APPLICATION. NAVARRO ABOGADOS September 2010

18. 5. PENALTIES. EFFECTIVE DATE AND TEMPORARY APPLICATION. PENALTIES • Non-possession of the documentation referring to transactions between related parties or delivery of incomplete, inaccurate or false documentation shall be considered as a tax offence. The penalty of such offence shall be: (i) if the Tax Administration does not make any correction on the tax assessment declared by the company, the penalty shall be of 1.500€ per data omitted, inaccurate or false and/or 15.000€ per group of data; (ii) if the Tax Administration makes any correction on the tax assessment declared by the company, the penalty shall be of 15% of the amount resulting from the value corrections, with a minimum of twice the penalty that would result if (i) had applied. Tax liabilities resulting from value corrections made by the Tax Administration shall not be penalized, provided that te company has all the documentation statutorily required. EFFECTIVE DATE AND TEMPORARY APPLICATION Obligations of documentation for transactions between related parties are mandatory as of 19/2/2009. Before such date, the effective documentary obligation and penalties prior to the current regulatory amendment shall apply to transactions between related parties. NAVARRO ABOGADOS September 2010

19. 6. SERVICES BETWEEN RELATED INDIVIDUALS OR COMPANIES. NAVARRO ABOGADOS September 2010

20. 6. SERVICES BETWEEN RELATED INDIVIDUALS OR COMPANIES. 6.1.           Intragroup services. Requirements for its deductibility. • Arms-length price:Both the value assigned to the service by the beneficiary and therefore the maximum amount it would pay on a arms-length basis and the position of the service provider establishing the minimum amount under which it would not render the service, must be taken into account. • Appropriate charge method: The method to determine the charge for the service received must be a method that, in similar circumstances, would have been accepted by an independent company. Direct invoicing method: The charge is determined taking into account the direct relation between the service and the consideration. Indirect invoicing method: For services jointly rendered in favour of several related companies and provided that the service received cannot be individualized, the aggregate consideration may be allocated among the beneficiaries of the service, based on distribution rules in accordance with rationality criteria (the rationality criteria is deemed as met when the allocation method applied takes into account not only the nature of the service and the circumstances where the service is rendered, but also the profits made or which would be made by the companies receiving the service). • Effectiveness and usefulness of the service provision: The service creates or may create usefulness or an economic advantage for the beneficiary company. • The following could be considered as “not useful”, (i) services called “shareholder’s activity”; (ii) “duplicated services”; (iii) the obtaining of an advantage or incidental profit by any of the companies of the group merely for belonging to a multinational group. NAVARRO ABOGADOS September 2010

21. 6. SERVICES BETWEEN RELATED INDIVIDUALS OR COMPANIES. 6.2.           Goods or services’ cost sharing agreement. A cost sharing agreement constitutes and agreement between companies the purpose of which is sharing costs and risks resulting from jointly developing, producing or obtaining an asset, service or right. It can consist of an agreement of I+D expenses contribution, acquisition of a common property or right or the joint obtaining of a service. Deduction of expenses derived from a goods or services’ cost sharing agreement entered into between related individuals or companies shall be subject to: • The parties entering into the agreement must gain access to the property or other similar right on the assets or rights acquired, produced or developed as a consequence of the agreement. • Contribution of each party must take into account the usefulness or advantages forecast each of them expects to obtain from the agreement according to rationality criteria (the key allocation must be reasonable in relation to the advantages of each party). • The agreement must contain the necessary compensatory payments and adjustments among the parties, should the circumstances or participating companies vary. • The agreement must include the requirements provided by regulations, which are the following: • the identification of the other companies involved. • the scope of the specific activities and projects covered. • the duration. • criteria to quantify the profit sharing expected among the parties. • the calculation method of their respective contributions. • the specification of duties and liabilities of the parties. • the consequences of the joining or removal of parties. • any other precept providing for the adaptation of the terms of the agreement to reveal a modification in the economic circumstances. NAVARRO ABOGADOS September 2010

22. 6. SERVICES BETWEEN RELATED INDIVIDUALS OR COMPANIES. 6.2.           Goods or services’ cost sharing agreement. In accordance with that provided in the new Royal Decree mentioned above, the goods or services’ cost sharing agreements shall contain the following: • the identification of the other individuals or companies involved (complete name, fiscal address, tax identification number, detailed description of the nature, characteristics and amount of the transactions). • the scope of the specific activities and projects covered by the agreements. • their duration. • criteria to quantify the profit sharing expected among the parties. • the method of calculation of their respective contributions, specification of duties and liabilities of the parties, consequences of the joining or removal of parties, as well as any other precept providing for the adaptation of the terms of the agreement to reveal a modification in the economic circumstances. NAVARROABOGADOS September 2010