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The purpose of this article is to bring to light the recent doctrine of the Spanish Supreme Court regarding the justification of expenses such as allowances, travel expenses and ordinary subsistence expenses in the income tax return of the employee who receives them.

The case resolved by Supreme Court judgment 429/2020 of 18th May addresses the issue of an employee who is partner of a company, holding a proportion of membership interests (shares) of a limited liability company, who is, in turn, also a director of the company, from whom the Administration is claiming that certain documentation should be provided with the income tax return during a number of years regarding travel and subsistence expenses paid by the company.

Two questions were raised regarding this matter. The first, consisted of determining who should demonstrate the reality of said expenses, and the second, clarifying whether the fact that the same person is both an employee and director is relevant for the purposes of the burden of proof.

The Supreme Court responded regarding the first point by stating that, although the assumption is that the burden of proof that the amounts received (allowances) are not taxable or are exempt corresponds to the taxpayer, it makes clear that two types of relationship must be distinguished: the principle relationship which links the taxpayer with the tax Administration, and another accessory relationship which links the withholder-payer of the taxpayer with said Administration. The character of the latter relationship is that which gives rise to the need to qualify the general rules on the burden of proof, even if this results in the Administration bearing the burden of proof, when they have the necessary means of verification which are not available to the taxpayer. This is due to the principles of availability of evidence and the facility to prove it.

According to the above, the Supreme Court stipulates that it is up to the tax Administration, and not the employee, to approach the employer in order to verify the accreditation of these expenses. This is because the withholder-payer  is the party which is obliged to prove that the amounts paid for these concepts correspond to movements made on a certain day and in a certain place, for employment reasons. The taxpayer, on the other hand, may be limited to only include in their income tax return the corresponding certificates issued by the company, and should they not be sufficient for the Administration, the latter must approach the employer.

The second point raised in the resolved dispute focuses on the relevance of the fact that the figure of employee and director of the paying company at the same time also falls upon the figure of the beneficiary of the aforementioned income.

At this point, the High Court disagrees with the Administration and the organ which passed the appealed judgment. The latter consider that the fact of being a director of the company is of capital importance for resolving this question. Furthermore, they allege that, due to being the director of the paying company, the company had access to all of the documentation that was required of the employee (taxpayer) and that, therefore the company should have acted with due diligence and facilitated all of the documentation that it had available.

The Supreme Court states that the appealed judgment and the Tax Administration required from the obligor (taxpayer) all of the complementary information which they deemed necessary, without even informing that holding the position of director resulted in the obligation to facilitate such documentation for the reasons explained in the foregoing. In other words, it reprimands the Tax Administration for requesting documentation from the obligor (taxpayer) as a natural person, and then subsequently requiring from the taxpayer, under the pretext of being the director of the company, even more data than what is legally required.

As a consequence, the High Court, dismisses that it is necessary to alter the general rule regarding the burden of proof explained above, merely on the grounds of the same person being a director and employee of the paying company parallelly. Should such circumstances concur in the same person, it shall be necessary to consider the specific case and to take into account certain aspects, such as, for example, whether the position of the recipient of the allowance in the company is relevant in making decisions on the need for making the trips to be paid for, the content of the demands made by the Administration, etc.

The Supreme Court concludes in categorical terms stating that the Tax Administration cannot make demands upon the taxpayer as a natural person and then afterwards declare that insufficient information has been provided because, being a director of the company means that a greater number of documents than those that may be required by law should be provided.


For more information, please contact:

Jaime Madero


Barcelona, 12th June 2020

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