Remuneration for company directors: deductible expense even if the bylaws do not establish it

 

The Supreme Court, in its judgment of May 9,2025 (STS 2127/2025), has resolved one of the most controversial tax issues for many companies, especially family-owned ones: the deductibility in Corporate Tax of the remuneration paid to partner-directors, even if the bylaws provide for the position to be unpaid.

An expense previously considered a "gratuity"

The case analyzed arose in a company whose partners were also directors. Although the bylaws established the position as unpaid, the company paid remuneration for the services they provided, the existence and effectiveness of which were never disputed.

The Tax Administration rejected the deduction of these payments in Corporate Tax, classifying them as "gratuities" under article 14,1. e) of the Corporate Income Tax Law. It relied on the well-known "link theory", according to which the functions performed by a director are an inseparable part of their relationship with the company, so if the bylaws do not provide for remuneration, any payment would be considered a non-deductible expense.

The Supreme Court puts an end to the link theory

The judgment breaks with this restrictive interpretation and establishes a new doctrine:

• If the remuneration corresponds to real, effective, and proven services, it cannot be considered a gratuity.

• An onerous, justified, and business-oriented expense must be considered deductible, even if the bylaws do not expressly provide for its remuneration.

• It is up to the Administration to prove otherwise if it intends to reject the deduction.

Corporate law infringement does not affect tax deductibility

The Court also clarifies that the failure to comply with corporate requirements (such as the lack of statutory provision for remuneration) does not automatically prevent the deduction. The Administration is not responsible for ensuring compliance with corporate law, but for applying tax regulations.

Likewise, it interprets restrictively article 15. f of the Corporate Income Tax Law, which excludes "expenses from actions contrary to the legal system." This exclusion should be reserved for serious cases such as bribes or obvious illegal conduct, not mere formal breaches.

Legal certainty for companies

The Supreme Court's ruling reinforces the primacy of economic reality over statutory formalities. From now on, what will be decisive is:

• That the service has been effectively provided.

• That there is a real and properly justified payment.

• That expenses are correctly recorded and allocated.

If these conditions are met, the remuneration for directors will be deductible, without the Administration being able to rely on the absence of statutory provision to reject them.

This judgment provides greater legal certainty to companies, which until now saw how the Administration's restrictive interpretation generated uncertainty and tax conflicts. The Supreme Court's criteria represent a significant advancement, especially for family businesses, in determining which expenses are effectively deductible.