Professional Companies: Tax Agency Note

As we mentioned in a previous entry of this Blog, within the actions included in the Annual Tax and Customs Control Plan for 2019, the Spanish Tax Agency (AEAT) plans to analyze the use of legal entities set up with the aim of unduly reducing taxation, without prejudice to specific analyses that allow it to detect other inconsistencies, such as the improper deduction of personal expenses.

The inclusion of this action in the 2019 Tax Control Plan is not new at all, since the AEAT has been investigating these situations particularly since the issuance, on March 26, 2009, by the Department of Financial and Tax Inspection, of the note that gave rise to the application of program 12500 by the Tax Inspection.

With the issuance of this note—access to which we have thanks to being members of the Spanish Association of Tax Advisors (AEDAF)—the Tax Agency seeks, on the one hand, to make available to taxpayers and advisors the necessary guidelines to facilitate, in accordance with the principles of transparency and legal certainty, the voluntary compliance with their tax obligations, which will presumably reduce litigation, and on the other hand, to warn which behaviors the Tax Administration considers contrary to the legal system and therefore subject to regularization.

In the aforementioned note, the Tax Agency in no way questions the freedom of an individual taxpayer to carry out their professional activity through a company. However, it makes it clear that this absence of objection does not mean that it accepts, per se, the validity of operations carried out through such structures, as it may question either the effective participation of the company or the valuation of the services related to it.

The note goes on to mention various situations that could be subject to regularization:

• Where the company lacks the material and human resources to provide the services it purports to perform, in the view of the Tax Administration, this would be a mere formal interposition of a company in professional relationships in which it had not actually participated. Therefore, when regularizing, the Tax Administration would resort to the concept of simulation provided for in Article 16 of the General Tax Law.

• Where the professional company does have adequate human and material resources that have genuinely intervened in the provision of the service, any regularization would arise from the incorrect valuation of related-party transactions in accordance with Article 18 of the Corporate Income Tax Law.

• Finally, the note refers to situations in which certain taxpayers place their assets in companies they own, which would be subject to regularization by the Tax Administration for Personal Income Tax (IRPF), Corporate Income Tax (IS), VAT, and Wealth Tax, in cases where the retention of income within corporate structures leads, for example, to the shareholder enjoying company-owned assets (e.g. housing, car, boat, etc.) without the existence of a lease agreement and/or where the company bears the shareholder’s personal expenses.

At Gestiona-t, we are available to discuss this Note issued by the Tax Agency.