The Central Economic-Administrative Tribunal (TEAC, of 09-04-2019, RG 3295/2016) has recently interpreted the deduction of directors’ remuneration in Spain.
As a general rule, the remuneration received by the director of a company in Spain is tax-deductible for the company. This remuneration is the compensation that the company pays the director for the provision of his/her services.
According to Article 15.1.e) of the Corporate Income Tax Act, these expenses are in principle deductible, with the consequent positive impact for the company in the income statement, and the reduction of the tax base for the company.
However, the company must meet three cumulative requirements for the remuneration to be a deductible expense from corporate income tax.
Requirements for the deduction of directors’ remuneration
- The bylaws of the company must expressly state that the position of director is remunerated
- Based on the principle of certainty, the bylaws of the company must specify the remuneration scheme from among those provided for by law (fixed amount, a variable amount, share in profits, etc..). If the exact amount of the remuneration does not appear, it must be perfectly identifiable
- The relevant corporate bodies must support the remuneration, meaning that the General Shareholders Meeting or the management body, as the case may be, should expressly and correctly approve it and record it in a company’s minutes.
When the above three requirements are met, it will be understood that the amounts paid by the company to the director are necessary to obtain the corporate income and, therefore, deductible in the taxable base for Corporate Income Tax.
Therefore, it does not suffice that the company has incurred the expense; compliance with the three requirements set out above for the deduction of the director remuneration is a condition sine qua non.
It is essential to consider these factors since the tax authorities may request documents proving these circumstances during tax inspections. In the event of non-compliance, the inspector may adjust the calculation of corporate income tax, qualifying such expenses as non-deductible, with the consequent tax burden on the company and without prejudice to any possible interest, surcharges, and penalties.
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