In our articles of the 22nd of September 2023 and the 8th of March 2024, we analysed the Supreme Court’s change of approach in relation to the issue of the deductibility of remuneration received by company directors, and the application of the so-called “link theory” (teoría del vínculo). The Supreme Court, contrary to what the Tax Administration has been upholding, ruled that remuneration received by top executives who, at the same time, form part of the management body of the company, does not constitute a non-deductible “liberality” for the purposes of article 14.1e) of the TRLIS (consolidated text of the Corporate Tax Law), either due to the fact that the relationship which binds those who receive the remuneration to the company is commercial in nature, or because the commercial requirements relating to remuneration (the need for a provision in the company by-laws specifying the paid nature of the position of director, and the approval of the remuneration in the general meeting of shareholders) have not been met, as long as said remuneration is accounted for, accredited, and made in consideration of services which have been effectively rendered. This is the judgment upheld by the High Court in its sentences of the 27th of June 2023, 2nd of November 2023, 18th of January 2024, and 13th of March 2024, amongst others, and in the most recent sentence of the 13th of June 2024.
This approach has also been welcomed by the Central Economic Administrative Tribunal (TEAC) in its resolutions of the 22nd of February 2024 and the 27th of May 2024. In the resolution of the 22nd of February 2024, the TEAC was required to analyse the deductibility of remuneration received by members of the board of executive directors. After echoing the precedent of the Supreme Court and recognising the overturning of the “link theory”, the TEAC confirmed the deductibility of remuneration received by said top executives, given that, in the particular case under scrutiny, the remuneration was duly accounted for and in consideration of services effectively rendered.
Nevertheless, the TEAC considered that, in those cases where the same person receives remuneration as both director and top executive, and said remuneration could be broken down into the individual roles which it compensates, then the remuneration received in one’s capacity as director could be deemed non-deductible if the commercial requirements regarding the remuneration of directors are not met. This would not affect the remuneration received as top executive, which would indeed remain tax deductible.
Subsequently, the TEAC issued a new resolution on the 27th of May 2024, in which the tribunal established that the judgement put forward in its previous resolution of the 22nd of February 2024 had remained overturned by the ruling of the Supreme Court of the 13th of March 2024. As a result, the TEAC resolved that, even if it were possible to determine which payments were those received in one’s capacity as director (commercial relationship) and those in one’s capacity as executive (employment relationship), the absence of a provision in the company by-laws does not imply that said remuneration received in one’s capacity as director is not tax deductible.
Joan Lluís Rubio
Vilá Abogados
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19th of July 2024
