The Spanish Accounting and Audit Institute (ICAC), in its gazette no. 131 of September 2022, reminds us of the accounting treatment of the expenses derived from the remuneration plan for certain employees by a related entity.
This is a plan that is established as a way of allowing the executives of the Spanish employer company to participate in the results of this entity, without granting them the rights inherent to a shareholding in the company. Although these executives have an employment relationship with the company, it is not the company that bears the cost of the incentive, but a related non-resident company, which will make the cash payment of the remuneration.
Based on the criteria of previous resolutions, the ICAC determines when must the expense be recognised and what the balancing entry in the balance sheet should be.
✔ The analysed case consists of an incentive plan known as “phantom shares plan” whose beneficiaries are the top executives of a Spanish resident company within the framework of an ordinary labour relationship. Such plan is granted by a related non-resident company. Despite these top executives work for the Spanish resident company and not for the non-resident grantor, the Spanish employer does not pay any amount in relation to the Plan.
✔ The monetary remuneration to the employees shall be paid in cash when there is a distribution in favour of the shareholder investors in the Spanish employer company. In other words, once the non-resident shareholders have recovered their initial investment in addition to a profit, any payment to the shareholders will generate, as well, the right of the personnel involved in the Plan to receive 12.5% of such amount, based on a distribution key.
✔ Based on the accrual principle and irrespective of the effective payment moment, the expense for the employees’ remunerations will be registered in the fiscal year of accrual for the best estimate of the amount payable to the employees, by recognising it in the account no. 640 “Wages”. In relation to the balancing entry, it will be recognised in the account no. 118 “Other shareholders contributions” in so far as these are made for no consideration and in proportion to their interest, according to the ICAC Resolution of 05 March 2019.
✔ From the Corporate income tax point of view and as the transaction is paid in cash, the expense in the employer company will be computed in the fiscal year in which the payment is made.
✔ Besides and when the incentive is paid to the executives, the Spanish employer will be obliged to practice Payroll tax, on account of their final Personal income tax, on the amounts that the non-resident grantor pays to the top executives benefiting from the Plan.
✔ The importance of this resolution relies, once again, on facilitating an interpretative criterion of the General Accounting Plan by the ICAC with regard to new formulas, increasingly widespread, to attract and retain talent in companies.
Publicado el 11-2022 por PBS
