The jurisprudence of the Spanish Supreme Court considers, with respect to the Directors of a company with which they have signed a senior management contract, that their link with it is exclusively commercial and not of a labour nature, based on its own essence and content.
The Personal Income Tax Law includes, amongst income from work, all the payment received from the functions inherit to the position of the Director, regardless of whether an employment contract has been formalised or not.
Even so, such treatment differs in some aspects from the one applicable to labour income that derives from a working relationship. In their CV1984-18 response on the 3rd July, the General Directorate of Taxes (GDT) clarifies what said treatment should be and provides, as a novelty, the possibility to apply the special valuation rules established in the Personal Income Tax Law in relation to fringe benefits granted to employees.
✔ In its resolution, the GDT determines, in accordance with the definition stipulated in the Personal Income Tax Law, that income obtained by companies’ Directors is considered as employment income, regardless of whether the Spanish Supreme Court may have considered that the relationship between the Directors and the company has mercantile character, as it is not of a dependant nature.
As a result, the withholding rate of 35% is applicable, although in the case of income from companies with a net turnover of less than 100,000 Euros, this percentage is reduced to 19%.
✔The GDT has also commented on the allowances received by the Directors and the travel expenses incurred. On this question, while the economic compensation in favor of employees is exempt from tax under certain requirements, when the person who incurs these expenses is the Director, a distinction must be made between the following scenarios:
– If the company provides the Director with the means of transport to go to the place where they must perform their duties and, where appropriate, the accommodation, there will be no income as there is no particular benefit for the same.- On the contrary, in the case of reimbursement of expenses without the Director being able to strictly prove what these expenses compensate, or in the case of payment of a monetary amount so that the administrator freely decides on the expenses to be incurred, the compensations received will not be exempt from but subject to tax. ✔ The exemption for works performed abroad, to which employees who have an employment relationship are entitled, is not applicable to the Directors of a company. The GDT determines that the “works” to which the legal precept refers are exclusively those derived from an employment or statutory relationship and not those derived from a commercial relationship. ✔ Finally, in relation to the Directors’ remunerations in kind and their assessment, the GDT allows them to resort to the special rules of assessment contained in the Personal Income Tax Law; such as those applicable to the use of a home owned by the employer, the use or delivery of motor vehicles, or loans with interest rates lower than the legal one, amongst other things.
Even so, the exemptions provided for certain employment fringe benefit, such as luncheon vouchers, for example, or cases of non-subjection, are only foreseen for workers, since they are exclusively applicable to income derived from working relationships.