TAX LAW DIVISION
The deductibility of directors’ remuneration for Corporate Income Tax purposes is one of those issues that never seems to disappear from the tax agenda. Just when it appeared that the Spanish Supreme Court had made it sufficiently clear that such remuneration could not automatically be classified as a gratuitous payment (liberalidad), Judgment No. 615/2026, of 18 May, introduces a further nuance of considerable practical importance.
The case arose in circumstances that could have made the taxpayer’s position difficult to defend. The company’s articles of association expressly provided that the members of the board of directors were entitled to remuneration, and service agreements had been entered into with its managing directors. Subsequently, however, the board resolved to increase each managing director’s annual remuneration from €18,000 to €60,000 without obtaining the express approval of the general shareholders’ meeting. In addition, a minority shareholder had opposed both the remuneration scheme and the subsequent increase.
Against this background, the Spanish Tax Agency (AEAT) argued that the company had breached corporate law requirements and therefore denied the deductibility of the expense. In doing so, it relied not only on the traditional argument that the remuneration could constitute a gratuitous payment, but also on Article 15(f) of the Corporate Income Tax Act, which disallows the deduction of expenses arising from acts contrary to the legal system.
It is precisely here that the judgment makes its most significant contribution. The Supreme Court does not merely reaffirm that directors’ remuneration which is genuine, effectively paid, properly recorded in the accounts and adequately substantiated cannot, in itself, be regarded as a gratuitous payment. It goes one step further by clarifying that a possible breach of corporate law formalities cannot automatically be treated as an act contrary to the legal system for tax purposes.
In other words, the existence of a potential corporate law irregularity does not, by itself, entitle the tax authorities to deny the deductibility of the expense. The AEAT cannot assume functions that properly belong to the commercial courts, nor may it use Corporate Income Tax as an indirect mechanism for resolving internal corporate disputes.
The Supreme Court emphasises that the tax authorities did not dispute that the remuneration had been properly recorded in the company’s accounts, recognised in the appropriate tax period, supported by documentary evidence and paid in consideration of services that had actually been rendered. These factors are significant because they establish the existence of a genuine business expense connected with the company’s activities. Once this has been established, it is for the tax authorities to identify and justify the specific tax adjustment that would prevent the expense from being deductible.
The judgment also clarifies the scope of Article 15(f) of the Corporate Income Tax Act. The concept of “acts contrary to the legal system” must be interpreted restrictively and reserved for conduct of a more serious nature, such as bribery or other comparable unlawful activities. Extending the provision to encompass any formal or corporate law irregularity would open the door to an excessively broad interpretation, potentially giving rise to tax adjustments that would be difficult to reconcile with the principle of legal certainty.
Another particularly important aspect of the judgment concerns the position of the minority shareholder. The tax authorities attempted to justify their assessment on the basis that it protected the interests of the dissenting shareholder. However, the Supreme Court rejected this argument, holding that the AEAT cannot assume such a role. The protection of shareholders’ rights falls, where appropriate, within the scope of company law remedies and the jurisdiction of the commercial courts, not within the framework of a tax reassessment under the Corporate Income Tax regime.
From a practical perspective, the judgment strengthens the position of companies facing tax adjustments based solely on defects in compliance with corporate law. Where directors’ remuneration corresponds to genuine services, is authorised under the company’s articles of association, has been properly accounted for and is adequately supported by evidence, the tax authorities cannot automatically deny its deductibility.
That said, the judgment should not be interpreted as an invitation to relax corporate governance or documentation standards. Properly drafted articles of association, duly approved service agreements, clearly established maximum remuneration limits and comprehensive documentation of the services provided remain essential. The judgment protects taxpayers against automatic tax adjustments, but it does not transform poor corporate governance into a tax advantage.
Ultimately, the Supreme Court consolidates its taxpayer-friendly case law on the deductibility of directors’ remuneration while introducing an important clarification: although the tax authorities remain entitled to review and adjust tax returns, they may do so only where there is a sufficient tax law basis for the adjustment. They cannot simply convert every corporate law dispute into a non-deductible expense for Corporate Income Tax purposes.
