The distinction between a related-party transaction and an ordinary business expense can have significant consequences for a company’s tax position. Two recent developments at Spain’s Supreme Court put that distinction under scrutiny, addressing the treatment of directors’ remuneration and the deductibility of restructuring costs. While one case establishes limits on the use of transfer pricing rules, the other opens the way for further clarification.
- Supreme Court Order 6478/2026 of 24 June 2026
The Supreme Court admits an appeal in cassation concerning the remuneration of the individual appointed by a corporate director and its potential treatment as a related-party transaction.
The Supreme Court has admitted an appeal in cassation to determine whether remuneration received by an individual appointed by a corporate director under Article 212 bis of the Spanish Companies Act (TRLSC) falls within the exclusion under Article 18.2(b) of the Spanish Corporate Income Tax Law (LIS) for remuneration derived from director or board member functions, or whether it should instead be treated as a related-party transaction subject to the arm’s length principle.
The appeal also addresses, if the related-party regime applies, the application of the comparable uncontrolled price method under Article 18.4(a) of the LIS and the selection of appropriate comparables.
The Supreme Court considers the matter to be of objective cassational interest given its relevance and the absence of clear case law. The ruling may have implications for corporate group structures and the distinction between directors’ remuneration and related-party transactions. The admission order does not prejudge the merits, and the Supreme Court has yet to establish the relevant case law.
- Supreme Court Judgment 2532/2026 of 25 May 2026
The Supreme Court recognises the deductibility of restructuring and closure costs and limits the application of the related-party transaction regime to transactions carried out between related parties
The Supreme Court confirms the deductibility of costs arising from restructuring and closure processes, including collective redundancy procedures (ERE), severance payments and related expenses. It also holds that Article 16 of the former Spanish Corporate Income Tax Law (TRLIS), governing related-party transactions, cannot be relied upon to deny the deductibility of expenses arising from dealings with third parties.
The dispute concerned whether the Tax Authorities could apply transfer pricing rules, based on an alleged “group strategic decision”, to allocate to another group entity the costs associated with the closure of the Spanish entity’s business and, consequently, deny their deductibility, even though those costs arose from dealings with third parties, including employees and labour authorities.
The Supreme Court upholds the company’s position, holding that Article 16 applies exclusively to transactions between related persons or entities and does not empower the Tax Authorities to recharacterise or disallow expenses incurred with third parties by applying transfer pricing rules.
Accordingly, the deductibility of such expenses must be assessed under the general tax rules and subject to the ordinary requirements for deductibility. The related-party transaction regime cannot therefore be used to determine the tax treatment of expenses arising from dealings with third parties.
This article was prepared by Allyon ETL for the ETL GLOBAL Transfer Pricing Group. Visit the group’s dedicated page to learn more and get in touch for further assistance.
