Siro Barro, Partner in the Tax Area of Escalona & de Fuentes, was interviewed for an article published by El Economista about a resolution of 24 September of the Central Economic-Administrative Court (TEAC) which is binding on the Spanish Tax Agency and which established that a company’s directors or managers must receive remuneration for their work in linked companies.
Siro Barro points out that the TEAC resolution “may be highly significant for the purpose of family businesses being able to comply with the requirements necessary to access tax exemptions”. As an example, he explains that, if a person plays a management role in a company for which he receives 100 euros, this being his entire income, he meets the requirement. But if he also represents this company in another investee company, now the Treasury can say that he is being paid separately for this role and could value it at, for example, another 110 euros, so that what he earns in the parent company for performing a management role no longer represents most of his income and he would lose the exemption.
“I think this can do a lot of damage and catch out family business structures where a director of the parent company is representing it in its dependent companies without being paid for playing that role for the parent company,” adds the Partner of Escalona & de Fuentes. He also warns that, “in order to increase the taxable base of the personal income tax of the representative or member, there is also the effect of denying the application of the family business exemption from the Wealth Tax and the Solidarity Tax on Large Fortunes to every family member who is a shareholder”.
