Do you deduct the salary of the directors of your company? Beware of tax inspections!

In recent years, the deduction by companies of the salary of the members of the board of directors in Corporation Tax has been the subject of great controversy. In this post, we tell you what has happened, the current situation, and why Treasury inspections occur. Many companies pay millionaire salaries to their advisers, so the fact that it is considered a deductible expense in the IS is a great advantage.

What does the Corporation Tax Law establish?

The issue of deducting the salaries of company directors (CEO, CEO, president and vice president of the board) ended with the amendment of the IS Law in 2015, which established that they are a deductible expense. In this sense, based on article 15.e, the remuneration to administrators for the performance of senior management functions or other functions derived from an employment contract with the entity.

Why are inspections being carried out by the Tax Agency?

After the confinement of April to May, the inspections of the Tax Agency regarding the remuneration of the directors have returned. It rejects that they are a deductible expense by applying a resolution of the Central Economic-Administrative Court of July 17, 2020, which considers it this way because it is contrary to the legal system. This resolution understands that for the directors’ remuneration to be a deductible expense, the remuneration must be contemplated in the company’s bylaws. However, companies are reluctant to include this information in their statutes since they consider it to go against their operation freedom. They do not want minority shareholders, especially in large companies, to know the salaries of directors.

What can you do before a tax inspection?

Requests for additional information and tax inspections are increasing, so be prepared. To achieve this, you can follow the following guidelines:

• Receive the notification because even if you do not pick it up, the inspection will continue and may have worse consequences for you.
• Review the content of the tax requirement to be clear about what it is asking for.
• Count on the help of an expert tax attorney both for the management of your taxes on a day-to-day basis and for collaboration during an inspection or request for information from the Treasury.
• Analyse your tax and accounting situation. The objective is to anticipate what the inspector may ask you and clarify doubts.
• Answer all the inspector’s questions and help him with whatever he needs, always with the advice of an expert tax attorney.
  Define the strategy to follow with your advisor, and he will be able to indicate the options you have and which is the least burdensome for you.