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Deductibility from the Corporate Income Tax of the expenditure on the remuneration of the Administrator and the Managing director of the company.

The doctrine of case law (Supreme Court judgment of 13 November 2008, among others) establishes the inability of the coexistence of a special labour relation of senior management whose objective consists of the development of administration and management activities for the society and the Administrator’s relation to society. Therefore, it should be understood that the link with society is exclusively of a commercial nature, and not a labour nature, because the senior management functions are subsumed into the functions of the Administrator.
Applicable rules:

-          LIRPF, Ley 35/2006, arts. 17.2. e, 101 y DA trigésimo quinta.

-          TRLIS/ RD. Leg 4/2004, arts. 10.3, 14.1 e) y 19

-          LSC/ RD. Leg 1/2010, de 2 de julio, art. 217.1
 

The doctrine of case law (Supreme Court judgment of 13 November 2008, among others) establishes the inability of the coexistence of a special labour relation of senior management whose objective consists of the development of administration and management activities for the society and the Administrator’s relation to society. Therefore, it should be understood that the link with society is exclusively of a commercial nature, and not a labour nature, because the senior management functions are subsumed into the functions of the Administrator. 

With regard to the Administrator’s remuneration and its deductibility from the Corporate Income Tax, our starting point has to be the Statutory reserves (currently regulated by Article 217.1 of the Company Act). In this way the Third Chamber of the Supreme Court in its judgments of 13 November 2008, it stated the concreteness and the certainty of the payment system and the necessity of the compliance with the following requirements:
 

-          If the chosen system is the variable one, and it is based on a share of the profits of the company, the percentage should be perfectly specified in the social statutes.

-          If the system chosen is a fixed assignment, the provision of the existence and obligation of the remuneration is not enough, it is necessary that the social statutes provide the amount of the remuneration or, at least, the criteria to calculate them without any discretion. 

Nevertheless, the General Directorate of Taxes in his report of 12 March 2009, questioned the classification as liberality of the remunerations which do not comply scrupulously with the requirements of certainty established in the Supreme Court’s judgments, because those judgments where given under Law 61/1978.
 

In virtue of that report, if the social statutes establish the remuneration of the Administrator, the remuneration paid will have the consideration of deductible expenditure in accordance with the existing rules, when: it represents an accounting expense, it is registered in the accounting results, and it does not represent a liberality because it is done in order to gain income. 

Nevertheless, the report does not defend the deductibility of the remunerations which are not established in the social statutes. It must be kept in mind the accreditation of the provision of services which motivates the remuneration and as they are linked operations their valuation should be done at the market price. 

Lately, the General Directorate of Taxes in his consulting V0879-12 gave a decision concerning the taxation of the remuneration of the Administrators who are also Managers, that they are included in the special framework for self-employed workers and perceived a monthly remuneration because of their management functions. 

If in the social statutes the charge of the Administrator is regulated as unpaid work and it does not recognize the existence of a dual relation (commercial or labour relation), it is concluded that the primacy of the commercial relation had the consequence of considering the remuneration as a liberality satisfied to the manager. 

The qualification of the Administrators remuneration in the Personal Income Tax, a part of the incompliance of the commercial requirements for its acquisition, has the consideration of employment income of the Article 17.2.e) of the Law 35/2006, and is subject to 35% taxation (42% during the exercises of 2012 and 2013).  

CONCLUSIONS: 

-          There is a need to establish in the social statutes that the Administrator has the right to remuneration.

-          The doctrine of the link, establishes the incompatibility of a labour relation of senior management and the Administrator relation, consequently, the nature of the link between the Administrator and the society is commercial.

-          The doctrine of the link shows awareness that the remuneration of the Administrator which is also Manager, is submitted to the retention rate of employment income of the Article 17.2.e) of the Law 35/2006.