In a recent ruling, the Audiencia Nacional admits the deductibility of directors and administrators remuneration, as long as it complies with commercial regulations, avoiding excessively formalistic criteria

For years, the Tax Inspectorate has been discussing the deductibility of the remuneration of directors and administrators when they do not comply (in a very restrictive manner) with commercial regulations in relation to such remuneration. For these purposes, the Administration currently uses the rule established in the current Corporate Income Tax Law (Law 27/2014, of 27 November) by virtue of which expenses arising from actions contrary to the legal system are not deductible (article 15.f). Prior to the entry into force of this law, the rule did not contain this rule and the rejection of deductibility was justified on the grounds that these were either unlawful expenses or donations. Compliance with commercial law requires, among other requirements, that the bylaws provide for the remuneration system and, in relation to this and other aspects (such as the necessary approvals by the board and the board of directors), the administration has been following a formalistic and very restrictive criterion.

In the judgment of the Audiencia Nacional of 21 September 2022, the court departs from this formalistic criterion, as it has done in previous judgments of the same court in cases involving sole proprietorships or cases in which the remuneration had not been challenged.

On this occasion, this is a listed company whose bylaws provided for the remunerated nature of the position, establishing a different remuneration system depending on whether or not the directors performed executive functions. In none of the cases were specific amounts foreseen, but rather references were made to the corresponding approvals by the company’s decision-making bodies.

The Audiencia Nacional accepts the deductibility of remuneration and makes the following reflections (supported by the jurisprudence of the Supreme Court):

a. Remuneration system means the set of rules for determining remuneration.
b. This system must be clear and precise, but commercial law grants a wide margin of freedom to establish the remuneration system in the articles of association, always preserving the interests of the shareholders.
c. If the articles of association establish the remunerated nature of the position of director and lay down a set of rules aimed at determining that remuneration, the expense should be deductible, even if the determination of the amount is left to the general meeting or the board of directors. This is without prejudice to the fact that the articles of association do not specify, for example, the type of remuneration in kind to be received by directors or that the receipt of certain remuneration is established as a possibility and not as a certainty.
d. The distinction between executive and non-executive directors does not mean that the remuneration does not comply with company law, because this issue is not relevant for judging the legality of the remuneration. What is relevant is that the bylaws provide for the director’s remuneration and establish a remuneration system.

If you have any doubts about this subject, please do not hesitate to contact us, by telephone to Carlos Torrentbó Castillo or Carles Monfort Codina or by e-mail: ctc@btsasociados.com, or cmc@btsasociados.com , we will be delighted to help you.