The recent judgment of the National High Court 2025/5872428 given on 8th May 2025 regarding the challenge to the ruling by the Central Economic Administrative Court (Tribunal Económico-Administrativo Central) hereinafter “CEAC”, of 11th June 2020, regarding claim 2782/2018), clarifies the court’s position on the deductibility of the remuneration of company directors for corporate income tax purposes, when said retribution has not been formally approved by the General Shareholders’ Meeting.

The analysed case refers to the 2011 to 2014 fiscal years and focuses on two main issues:

  1. The deductibility of the payments made to the members of the Board of Directors and the Managing Director of the company.
  1. The deduction on investments in cinema carried out by the Economic Interest Group (Agrupación de Interés Económico) hereinafter “EIG”).

Case background

In the case at hand, the appellant company challenged before the National High Court the ruling by the TEAC, which had partially upheld its claim against the Spanish Tax Agency’s assessment triggered by a notice of disagreement.

The tax regularisation affected two concepts:

  1. Remuneration of company directors: the deductibility of payments made to the company directors, understood as the remuneration of the Chairman of the Board of Directors-Managing Director was denied because they did not fulfil the conditions for approval required by commercial legislation (provisions regarding approval by the General Meeting).
  1. The deduction on investments in cinema: The deductibility of contributions made to the EIG “Clash of the Titans” was refused as the Inspectorate perceived that the EIG did not have the status of a film producer.

The National High Court addressed both matters, clarifying the applicable legal and case law requirements.

Remuneration of directors:

The CEAC had differentiated between executive functions (production direction, sales, financial and administration support) and strictly corporate functions such as that of being a member of the Board of Directors. It only considered the remuneration of directors to be those amounts linked to the latter, and therefore allowed a partial deduction.

Nevertheless, the National High Court emphasised that:

  • The expenditure was genuine and justified: The executive functions carried out were not questioned, and the expenses were correctly accounted for and correlated with the generation of income.
  • Company bylaws and the knowledge of the partners (shareholders): The bylaws provided for the remuneration of the directors, and the majority partners were aware of and had approved the service agreements, and had even actively contributed to their conclusion.
  • General meeting and sole partner (shareholder) status: When the company has a sole partner (shareholder), who in turn performs the functions of the General Meeting, it is not logical to require strict formal approval. Denying deducibility under these conditions would imply excessive formality and would be contrary to the spirit and purpose of the rule.

Recent jurisprudential doctrine endorses this criterion. For example, Supreme Court Judgment of the of 2nd November 2023 establishes that the remuneration of managing directors who are also members of the Board of Directors are deductible providing that the executive functions are genuine and effective. Likewise, Supreme Court Judgment of the of 27th June 2023 claims that when the bylaws establish the retribution of the directors and the sole partner is fully informed, the lack of formal approval from the General Meeting does not convert these payments into non-deductible expenditure.

Consequently, the National High Court concludes that the refusal of these retributions as deductible expenditure lacks principle, and that the ruling of the CEAC should be annulled.

Conclusion:

The National High Court Judgment consolidates relevant criteria regarding tax and business practice:

  1. Remuneration of company directors: The deductibility does not exclusively depend on the formal approval of the General Meeting, but on the existence of genuine and effective executive functions and on the knowledge of the majority partners (shareholders) or the sole partner.
  1. Avoid excessive formalities: Requiring the approval of the Meeting when all of the partners are fully informed constitutes an abuse of formality that cannot affect the deduction.
  1. Legal security: the jurisprudential criteria allow companies to have greater security regarding the deductibility of expenses, avoiding penalties for formalities that do not reflect financial or corporate reality.

In short, the ruling represents a significant step towards a functional and coherent interpretation of tax and commercial regulations, protecting both the tax deductibility of expenditure as well as the rights of taxpayers in relation to formal requirements.

 

 

Kengo Matsuoka

Vilá Abogados

 

For more information please contact:

va@vila.es

 

10th of September 2025