Directors' remuneration: a company-law irregularity does not automatically render the expense non-deductible
The tax deductibility of directors' remuneration has traditionally been an area of friction between companies and the tax authorities, particularly where the remuneration does not strictly comply with the requirements of the “Ley de Sociedades de Capital” —the Spanish Companies Act, the LSC—. The judgment of the Third Chamber of the “Tribunal Supremo”, Spain's Supreme Court, of 18 May 2026 (the “Sala de lo Contencioso‑Administrativo”, the administrative-law chamber, Second Section, cassation appeal 8019/2023) consolidates the doctrine begun by STS 1053/2024 of 13 June and clarifies that a company-law irregularity, such as the failure of the general meeting to approve the maximum amount of the directors' annual remuneration, is not in itself sufficient to render the expense non-deductible under article 15.f of Law 27/2014 on corporation tax. Where the services are real, the remuneration has been paid and recorded in the accounts and there is a correlation with the business activity, the authorities may not refuse the deduction merely by invoking a formal company-law breach. The question becomes what the company must document in order to establish the reality and necessity of the expense and in which cases the authorities may still legitimately refuse it.
1.The company-law framework: directors' remuneration and the requirements of the “Ley de Sociedades de Capital”
The starting point lies in the company-law rules on directors' remuneration. Article 217 of the consolidated text of the “Ley de Sociedades de Capital”, approved by Royal Legislative Decree 1/2010 of 2 July, provides that the office of director is unpaid unless the articles of association provide otherwise by determining the system of remuneration. The system of remuneration must set out the components of remuneration, which may consist, among others, of a fixed allowance, attendance fees, a share in profits, variable remuneration linked to general reference indicators or parameters, remuneration in shares or linked to their performance, severance payments where removal is not due to a failure to perform duties, and savings or pension schemes. Paragraph 3 requires the maximum amount of the annual remuneration of all the directors in their capacity as such to be approved by the general meeting and to remain in force until its amendment is approved, and requires that, unless the general meeting decides otherwise, the distribution among directors be established by agreement between them or, in the case of a board, by decision of the board itself, having regard to functions and responsibilities. Paragraph 4 adds that the remuneration must bear a reasonable proportion to the importance of the company, its economic situation and market standards, and must be aimed at promoting long-term profitability and sustainability, incorporating safeguards to prevent excessive risk-taking and the rewarding of unfavourable results.
Article 218 governs remuneration by way of a share in profits, requiring the articles of association to determine specifically the share or the maximum percentage and laying down specific limits: in the private limited company (“sociedad limitada”), the maximum percentage may not exceed ten per cent of the distributable profits; in the public limited company (“sociedad anónima”), the share may be taken only from net profits and only after the legal reserve and the reserve required by the articles have been covered and the shareholders have been allocated a minimum dividend of four per cent of the nominal value of the shares or the higher rate laid down in the articles. Article 219, for its part, governs remuneration linked to the company's shares, requiring express provision in the articles and a resolution of the general meeting setting out the maximum number of shares, the exercise price or the method of calculating it, the reference value and the duration of the plan.
As the case law of the civil courts and registry practice have emphasised, this company-law framework seeks to protect shareholders, and minority shareholders in particular, through transparency and control over directors' remuneration. The requirement of provision in the articles and of approval by the general meeting of the maximum annual amount is not mere formalism but a corporate governance mechanism. The question that arises in tax proceedings, however, is whether a failure to comply with those company-law requirements automatically turns the remuneration into a non-deductible expense.
2.The tax framework: article 15.f of the “Ley del Impuesto sobre Sociedades” and expenses contrary to the legal order
In tax matters, the deductibility of directors' remuneration is analysed in the light of the general rules on expenses and, in particular, of article 15 of Law 27/2014 of 27 November on corporation tax —the “Ley del Impuesto sobre Sociedades”, or LIS—. That provision lists the expenses that are not deductible for tax purposes, including, in subparagraph f), expenses arising from actions contrary to the legal order. The tax authorities have at times sought to bring within that category directors' remuneration that does not comply with company-law requirements, arguing that the absence of provision in the articles or of approval by the general meeting renders the remuneration contrary to the company-law order and therefore a non-deductible expense.
Article 106 of the “Ley General Tributaria”, Spain's General Tax Act —the LGT—, recalls that in tax procedures the rules on the means of evidence and its assessment contained in the “Código Civil” —the Spanish Civil Code— and in the “Ley de Enjuiciamiento Civil” —the LEC— apply, save where otherwise provided, and that deductible expenses arising from transactions carried out by traders or professionals must be evidenced primarily by an invoice meeting the requirements of the tax rules, although the invoice does not constitute a privileged means of evidence as to the existence of the transactions. Once the authorities call the actual performance of the transaction into question on reasoned grounds, it falls to the taxpayer to adduce evidence of its reality. This evidential framework is relevant to understanding what the company must document when the authorities dispute the deductibility of directors' remuneration.
3.The Supreme Court's doctrine: from STS 1053/2024 to the STS of 18 May 2026
Supreme Court judgment 1053/2024 of 13 June, Third Chamber, Second Section, had already laid down a clear doctrine on the classification of directors' remuneration as gratuitous benefits and on its deductibility. In that case the tax authorities had treated as non-deductible the remuneration paid to the directors of a public limited company whose articles of association provided that the office was unpaid, classifying the payments as non-deductible “liberalidades” —gratuitous benefits— under article 14.1 e) of the former consolidated text of the “Ley del Impuesto sobre Sociedades”. After recalling that remuneration for services actually provided is given for consideration and not gratuitously, the Supreme Court concluded that remuneration received by the directors of a commercial company, where it is evidenced and recorded in the accounts, does not constitute a non-deductible gratuitous benefit merely because it was not provided for in the articles of association, and that the breach of that formal requirement cannot in every case entail the treatment of the expense as a gratuitous benefit and the inadmissibility of its deduction.
The STS of 18 May 2026, Third Chamber, Second Section, cassation appeal 8019/2023, goes a step further in examining the application of article 15.f of Law 27/2014 to the remuneration of “consejeros delegados” —managing directors— whose increase had not been approved by the general meeting in accordance with article 217.3 of the “Ley de Sociedades de Capital”. In the case decided, the articles of association had been amended to establish a system of directors' remuneration, including fixed and variable remuneration for the managing directors, to be set by contracts approved by the board of directors under article 249 LSC. Remuneration of 18,000 euros a year was initially set, which the board raised to 60,000 euros a year for each managing director without any resolution of the general meeting on the new maximum annual amount. The “Agencia Estatal de Administración Tributaria” —the AEAT, Spain's tax agency— issued adjustment assessments for corporation tax for 2018 and 2019, treating the expense as non-deductible on the ground that it was contrary to the company-law order, and both the “Tribunal Económico-Administrativo Regional” —the regional tax tribunal, or TEAR— and the “Tribunal Superior de Justicia” of Extremadura —the High Court of Justice, or TSJ— upheld that view, stressing the need to protect the minority shareholder who had opposed the remuneration system.
The Supreme Court sets aside the judgment below and annuls the assessments, reiterating and consolidating its doctrine. The Chamber stresses that breaches of company law do not automatically render an expense non-deductible and that the tax authorities may not set themselves up as the guarantor of minority shareholders' rights, nor use the rule in article 15.f LIS as an instrument for protecting corporate governance. The expression “actuaciones contrarias al ordenamiento jurídico” (actions contrary to the legal order) is reserved for conduct such as bribes, bribery of public officials, criminal or administrative fines and other serious unlawful acts, and not for any and every formal company-law irregularity. The failure of the general meeting to approve the maximum amount of the directors' annual remuneration, although a breach of the LSC that may have consequences in company-law terms, does not in itself reach the seriousness required to justify treating the expense as non-deductible where the remuneration corresponds to real services, is recorded in the accounts and correlates with the business activity.
4.What the company must document: the reality of the service, correlation with the activity and basic company-law compliance
In the light of this doctrine, the key to the deductibility of directors' remuneration lies not in the formal perfection of company-law compliance but in establishing the reality and necessity of the expense. The company must document, first, the existence of real services provided by the directors in their capacity as such or, where appropriate, as managing directors or senior executives. This means having management or senior-management contracts, board resolutions defining functions and responsibilities, minutes of meetings, management reports and any other documentation evidencing the activity carried out.
Secondly, it must establish that the remuneration has actually been paid and recorded in the accounts, in accordance with the accruals principle laid down in article 11 of Law 27/2014, which requires income and expenses to be allocated to the tax period in which they accrue under the accounting rules, respecting the correlation between the two, and makes the deductibility of expenses conditional on their being recorded in the profit and loss account or in a reserves account where a statutory or regulatory provision so provides. Payslips, bank transfers, withholdings made and the recipients' returns under the “IRPF”, Spain's personal income tax, are relevant items of evidence.
Thirdly, it must demonstrate the correlation of the expense with the business activity and with the obtaining of income, so that the remuneration appears as a cost that is necessary or appropriate for the management and administration of the company and not as a gratuitous benefit. The Supreme Court's case law has insisted that a salary expense directly correlated with the business activity and with the obtaining of income cannot be classified as a gratuitous benefit.
Fourthly, although the Third Chamber's doctrine decouples tax deductibility from strict compliance with every company-law requirement, it is prudent for the company to document the corporate framework of the remuneration: provision in the articles that the office is remunerated and of the system of remuneration in accordance with article 217 LSC, resolutions of the general meeting approving the maximum annual amount of the remuneration of all the directors, managing directors' contracts approved by the board in accordance with article 249 LSC and, where applicable, resolutions on a share in profits or on remuneration in shares in accordance with articles 218 and 219 LSC. The more solid that framework, the narrower the scope for the tax authorities to question deductibility.
5.In which cases the tax authorities may still refuse the expense
The Supreme Court's doctrine does not render every item of directors' remuneration deductible. The tax authorities retain scope to refuse the expense in a number of cases. First, where the reality of the services provided is not established. If the company cannot show that the director or managing director has performed real functions, or if the remuneration is disproportionate in relation to the activity and to market standards, the authorities may question the correlation of the expense with the business activity and refuse its deduction for lack of necessity or as a disguised gratuitous benefit.
Secondly, where the remuneration conceals conduct that is genuinely contrary to the legal order within the meaning of article 15.f LIS, such as unlawful payments, bribes, illegal commissions or remuneration linked to criminal conduct. In such cases the non-deductibility rule applies in full, and the company cannot rely on the doctrine on company-law irregularities to save the expense.
Thirdly, where the company seriously and systematically fails to comply with its documentation and evidential obligations. Article 106 LGT allows the authorities to call the actual performance of transactions into question on reasoned grounds and shifts to the taxpayer the burden of proving their reality. If the company lacks adequate contracts, minutes, proof of payment or accounting records, the authorities may take the view that the expense is not sufficiently established and refuse its deduction.
Fourthly, where the company-law irregularity has significant financial consequences affecting the very existence of the claim or of the payment obligation. For example, if a general meeting challenges and annuls resolutions on directors' remuneration for breach of the LSC, and the directors have to return the sums received, the company cannot deduct an expense which has not in fact crystallised as a definitive cost.
6.Conclusion: separation of the two spheres and the evidential requirement
The STS of 18 May 2026 consolidates a clear separation between the company-law sphere and the tax sphere in matters of directors' remuneration. A failure to comply with company-law requirements such as approval by the general meeting of the maximum annual amount of the remuneration does not automatically render the expense non-deductible, nor does it allow the rule in article 15.f LIS on expenses arising from actions contrary to the legal order to be applied without more. The tax authorities may not use corporation tax as an instrument for protecting corporate governance, nor set themselves up as the guarantor of minority shareholders' rights by refusing deductions on account of formal irregularities.
At the same time, the deductibility of directors' remuneration remains conditional on the reality and necessity of the expense, on its correlation with the business activity and on proper documentation and evidence. The company must establish real services, actual payments, correct accounting allocation and a corporate framework reasonably compliant with the LSC. The tax authorities retain the possibility of refusing expenses that conceal gratuitous benefits, unlawful conduct or disproportionate remuneration unsupported by evidence.
In short, the Third Chamber's doctrine for the two-year period 2025‑2026, reflected in the Chamber's official case-law review and in judgments such as 1053/2024 and that of 18 May 2026, offers companies a more secure framework for the deductibility of directors' remuneration, but it also requires of them rigour in documentation and in basic compliance with company law. A company-law irregularity ceases, in itself, to be an automatic ground of non-deductibility, but proof of the reality and necessity of the expense becomes the focal point of the tax dispute.
