In a recent Ruling (No. 790/2022) dated 20 June 2022, the Supreme Court ruled that directors or members of the Board of Directors, like any other employee, enjoy an exemption from Personal Income Tax for work effectively performed abroad.
It should be recalled that this exemption is regulated in Article 7.p) of the Personal Income Tax Law and in Article 6 of the Personal Income Tax Regulations. This important personal income tax exemption is established, when the necessary requirements are met, for the first 60,100 euros per year income received for work effectively carried out abroad.
In the reasoning provided by the Supreme Court in its Judgment, it is emphasized that the Treasury’s interpretation of the tax regulations was mistaken, namely (Third Legal Argument): “It is a restrictive interpretation that is not supported by a literal, logical, systematic and finalist interpretation of Article 7, p) of the Personal Income Tax Law. It makes no sense to accept that the scope of the exemption does not include the remuneration of administrators, although there is an express provision in the said letter e) of Article 17.2 of the Personal Income Tax Law, without discussing the category of the work performed, especially when, as has been shown in the appeal, the remuneration received by the two administrators derives from the exercise of executive and management functions; and this assessment cannot be reviewed in cassation.
It cannot, as a matter of principle, be denied that the income received by the administrators and members of the board of directors can benefit from the exemption in question. This is what has happened on this occasion, since this conclusion is reached without engaging, strictly speaking, in a debate as to what kind of work is work carried out abroad”.
This criterion established by the Supreme Court, differs ostensibly from the criterion maintained by the Tax Authorities. In this sense, the Tax Authorities, in numerous binding consultations and inspections, considered that such work performed abroad by administrators or members of the Board of Directors did not enjoy the aforementioned exemption, because these workers do not have a relationship with their company in which the requirements of dependence and alterity from which employee relationships are formed are met.
Ventura Garcés offers its tax services to verify whether work effectively carried out abroad by the administrators and members of the Board of Directors meets the legal requirements to benefit from application of the aforementioned exemption in future personal income tax returns and, where possible, as a result of this ruling, to challenge the personal income tax returns filed for previous years, in order to obtain a refund of amounts unduly paid in from the tax authorities.