The Supreme Court issued a new ruling on March 13, 2024, regarding the deduction of administrators’ compensation in the Corporate Income Tax (IS), in a case where the bylaws did not establish a remunerated nature of the position, a matter not yet addressed by the High Court’s jurisprudence. This ruling was favorable in this regard.

Background and Previous Judgments

The deduction in IS of administrators’ and directors’ compensation has been a subject of controversy in tax inspections. Although Law 27/2014 on CIT apparently addressed the issue, it was not definitively resolved.

In January 2023, the National Court rejected the “millimeter doctrine,” followed by the Supreme Court in June 2023, concluding that the Tax Agency’s systematic refusal to deduct these compensations was unreasonable. This jurisprudential trend continued in the rulings of November 2023 and January and February 2024.

The Supreme Court Judgement

The judgement of the National Court denied the deduction of the salaries of three executives of a company who were also members of the Board of Directors. It was considered that the commercial relationship absorbed the labor one and that, since the position of administrator was free according to the bylaws, the salaries should be classified as non-deductible donations according to the TRLIS.

The Supreme Court established that the lack of statutory provision regarding the remunerated nature of the administrator’s position does not always imply the consideration of liberality and the denial of its deductibility. This conclusion adheres to the principle of income and expense correlation, making it inadmissible to qualify a salary expense directly correlated with business activity as a non-deductible donation.

Consequences and Recommendations

The ruling sets a precedent, clarifying that the lack of statutory provision does not necessarily imply that associated expenses are not deductible. Companies will need to pay special attention to the burden of proof to justify the onerousness of compensations and their relationship with income.

The possibility arises for companies that did not deduct these compensations due to considering the position unpaid according to bylaws to initiate proceedings to recover excessive taxation.

At addwill, we offer experience and specialization in this field to assist affected companies in analyzing their situation and in proceedings. We are available for personalized advice via phone at +34 934 875 200, email at, or by clicking here.