The Spanish tax authorities have recently started a massive investigation on the compliance of the formal requirements set forth by mercantile regulations in relation to Director’s fees so that they qualify as a tax deductible expense.

This new challenge only adds major concern on a rather confusing subject, that the Spanish tax authorities do not fully manage to make clear.

The tax deduction, for Corporation tax purposes, of Director’s fees has been the object of several resolutions of the Spanish Directorate of Taxes.

Based on the Supreme Court ,the relationship of a Director exercising management functions has to be qualified of a mercantile nature, they require the compliance of mercantile requirements so that the expense can be considered as tax deductible, to determine the taxable result (and tax quote) of companies.

Besides, an increased withholding tax rate of 42% applies on payments made of such nature.

Given this strict interpretation, it is recommendable for companies to review whether or not their by-laws and mercantile documentation are in compliance with the Spanish tax authorities requirements.

And, last but not least, do not forget that the Spanish tax authorities can review all years not time-barred by the statute of limitations of four years.

 

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