Last May 2018, we discussed the control measures that the Spanish Tax Agency is implementing to combat tax fraud and evasion. Since the approval of the Tax Control Plan Resolution of March 10, 2014, new documents have continued to be published that further the objectives of that Plan.
This March, specifically, the Spanish Tax Agency issued a Note analyzing the phenomenon of individuals using intermediary companies. This document aims to establish and provide guidelines to facilitate compliance with tax regulations and obligations.
Why is the Spanish Tax Agency (AEAT) interested in these cases?
The Tax Agency has long been paying special attention to situations in which a natural person establishes a company, which should be used for the development of an economic activity through its own means but which, in reality, fulfills other functions.
By using corporations, and under certain circumstances, it's possible to achieve more favorable tax treatment. Among other possibilities, this includes a lower corporate tax rate than would result from applying the progressive income tax scale, the ability to deduct certain personal expenses that the partner wouldn't have been able to deduct under the personal income tax system, and the avoidance of imputed income for second homes. Under certain conditions, operating through a corporation can also allow for an exemption from wealth tax or a significant reduction in inheritance tax when shares are transferred. These are just a few examples.
What does the Spanish Tax Agency (AEAT) hope to achieve by controlling these intermediaries?
The provision of services or the development of operations can be carried out by an individual or through the formation of a company. As we have seen, this decision can have a number of very different tax consequences.
The Tax Agency emphasizes that any professional can choose how they wish to carry out their profession, but this does not mean that the Administration accepts all types of transactions or that their valuations are always correct. Each specific case must be studied and monitored, as the activity must be taxed according to its true nature, regardless of how it is carried out.
Risks to consider
Although there are many situations that the Tax Inspectorate can address, it's important to emphasize that a company should not be treated as an empty shell. In other words, we must consider that carrying out any activity requires a certain set of resources (both material and/or human), and without them, the legal structure becomes entirely superfluous. In such cases, the Inspector or Tax Administration may regularize the tax situation, considering it a case of tax avoidance, as defined in Article 16 of Law 58/2003, of December 17, the General Tax Law.
The Spanish Tax Agency (AEAT) also closely examines cases where a partner makes personal use of assets belonging to the company. This sometimes involves the primary residence and/or second homes, vehicles, vacation trips, or even luxury goods. These situations could lead to tax adjustments for the partner's personal income tax (IRPF) or regarding the deductibility of VAT and the company's expenses.
In the case of use of an asset, it should be shown that there is a contract between the company and the partner that regulates this situation and that remunerates it taking into account a market value (article 18 of the LIS).
If you require our assistance to obtain further information or have any questions, please contact us via our legal email address, ambit@ambitassessor.com, or at our offices.
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A graduate in Business Administration from the University of Barcelona, she supplemented her studies with courses in customer service and corporate tax. While working and studying, she worked in sales and teller operations at La Caixa d'Estalvis i Pensions de Barcelona (now Caixabank) in 2007. From 2010, she worked as an advisor and accountant at Fiscalsegur and PKF Asesores. In March 2017, she joined Àmbit Assessor, SL as a tax and accounting consultant.
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