The tax management of companies is becoming increasingly complex, especially when it comes to related-party transactions. Recently, the Central Economic-Administrative Court (TEAC) has issued a key ruling that changes the tax treatment of services provided by directors on behalf of related companies. This ruling not only introduces new requirements but also forces companies to rethink their remuneration policies to adapt to a more demanding framework aligned with the principle of tax transparency.
In this context, it is essential to understand the changes introduced by this criterion and the practical implications for ensuring compliance and tax transparency in all related-party transactions. For this reason, we would like to talk to you in-depth about these new requirements and the strategies for their correct implementation.
What will this mean?
The TEAC has unified the criteria regarding the services that individual directors provide on behalf of related companies. According to this ruling, these activities must be considered independent operations and valued at market price, separating them from the general remuneration associated with the ordinary functions of the position of director.
This means that the exclusion provided for in Article 18.2.b) of the Corporate Income Tax Act is no longer applicable, which could lead to significant adjustments in the taxation of these transactions both for companies and for the directors themselves.
How should companies act?
With this new ruling, companies will have to review their tax and remuneration management practices to adapt to the established requirements. Organisations that have directors, individuals who provide representation services in related companies, will have to value these services as independent operations, adjusting them to the market price. This new obligation directly affects the accounting of remuneration and requires a distinction to be made between ordinary and agency services in their tax records.
To ensure proper implementation, companies should consider the following aspects:
- Review of remuneration policies: It is crucial that directors’ remuneration policies comply with the new criterion, clearly separating general remuneration from proxy services.
- Compliance with the arm’s length principle: The valuation of these services should follow the arm’s length principle, avoiding their integration into the director’s overall remuneration. This will require adjustments to transfer pricing management models.
- Increased administrative burden: The obligation to justify and document the valuations of these services represents an additional administrative burden for companies, especially in terms of document management and the submission of clear and detailed information in case of tax inspections.
- Impact on deductibility: It will be necessary to correctly identify the amounts deductible for corporate income tax purposes, avoiding that these adjustments may entail a risk of penalties or loss of deductibility.
In short, this resolution obliges companies to be more rigorous in the planning and management of directors’ remuneration, ensuring that tax compliance is kept in line with the TEAC’s new requirements.
The correct application of these new TEAC criteria requires experience and a strategic approach to avoid tax risks and penalties. Our team of specialists is ready to guide companies through this process, reviewing remuneration policies and adapting them to the new regulatory framework.
If you need personalised advice to comply with these requirements and optimise the tax management of your business, do not hesitate to contact us.
At LEIALTA we are with you to ensure that your company not only complies with the regulations but also makes the most of the opportunities for improvement in tax planning.
