These decisions not only consolidate previous criteria, but also establish binding guidelines with direct impact in the Spanish corporate income tax, wealth tax and personal income tax.
The TEAC has determined that the services provided by a natural person (director) designated by a company to represent the latter in an affiliated company must be considered a transaction between related entities. Consequently, such services are not included in the general remuneration of the director of the parent company; rather they must be valued at “market price”, which may change the way in which they are taxed both in the corporate income tax and the personal income tax.
The paradigmatic case for such a situation is the one analysed by the TEAC: a holding company appoints a director to represent its interests in an affiliated company. According to the TEAC, the services rendered exceed the traditional functions of a director and must therefore be valued at their market value. This marks a significant change in the interpretation of the Spanish Law on the Corporate Income Tax (Law 27/2014) and could increase the tax base of the affected individuals.
Furthermore, the new doctrine also directly affects the tax exemption for family businesses in the Spanish wealth tax. According to Article 4.8.2.c) of Law 19/1991, the requirement for an entity to enjoy such exemption is that the management functions of the taxable person must generate a remuneration of more than 50% of their total income. However, if the services rendered by the director are reclassified as a transaction between related parties, this requirement may not be met, putting at risk the exemption and the tax allowances associated with it in the Spanish inheritance tax.
This raises concerns for family businesses, where the correct application of the regulation is vital to preserve tax benefits. Moreover, if the parent company demonstrably does not add tangible economic value, the tax inspection could reclassify the remuneration, affecting the taxation of the directors.
By means of these decisions, the TEAC underlines the need for more transparent and detailed management in corporate structures. Companies should thus review their remuneration policies for directors and adjust their transfer pricing documentation to avoid tax contingencies and minimise tax risks.