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Following the constant debate regarding the legality of the use of companies by taxpayers for paying tax on their earnings, the Spanish tax authorities have made a statement in this regard, in order to establish guidelines for said use.
The Spanish tax authorities establish that indeed it is perfectly licit to provide professional services via a company. However, it will be necessary to specifically consider each case, regarding whether the company in question has sufficient means to carry out the presumed activity, and if it does have the means, does it actually intervene in the company activities. Thus, the limit may be found in the simulation. In addition, the valuation, at market price, of the operations carried out by the company should also be taken into account.
Hence, the tax authorities indicate that although it is legal to carry out a professional activity via a company, it is not obliged to automatically accept the legal validity of just any type of operation, when they do not correspond to the activity of the company; some of the most common cases occur when assets of the company are placed at the disposal of the partners, such as homes and vehicles, without the existence of any rental or assignment contract, as well as the payment of expenses associated with said assets and other personal expenses of the partner, such as leisure trips, luxurious goods, domestic staff salaries, and other sustenance costs, etc.
The tax authorities establish that all of the aforementioned behaviour is contrary to the rules, if the purpose is to not record any kind of personal income, while the company assumes the expenses derived from the taxpayer’s personal life. Likewise, the company may record countless vat deductions, which, if channelled directly through the natural person, would not have arisen.
Furthermore, the tax authorities refer to the simulation of contracts that, sometimes, attempt to sustain such expenses (leasing contracts, service agreements, etc.), as well as private expenses or investments carried out through the company, without any connection at all with the company’s activity.
It is sustained that although the tax payer may render professional services through a company, the resulting income must be taxable in accordance with its true nature, without trying to reduce, illegally, the tax burden of the latter.
The tax authorities state that “the possession by the company partner of assets or rights via a company is not a priori a matter in itself which is subject to regularisation, provided that the ownership and the use of said assets is protected by the corresponding legal title and tax has been paid in accordance with the true nature of said operations”.
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Barcelona, 5th April 2019