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Practical Income Manual 2022.

Estimated performance of work and related operations

Estimated work returns

Regulations: Articles 6.5 and 40 Law Personal Income Tax

The provision of services capable of generating income from work is presumed to be remunerated, unless proven otherwise.

In the absence of evidence to the contrary, the valuation of said returns will be carried out at their normal market value, with normal market value being understood as the consideration that would be agreed between independent parties, unless proven otherwise. However, the valuation of certain estimated remuneration paid in kind will be carried out by applying the special valuation rules discussed in the next section ( Income from work in kind ) discussed.

Income from work in related operations

Regulations: Art. 41 Law Personal Income Tax

In cases in which the provision of personal work is carried out to a company with which there are relationships, in the terms provided for in article 18 of the LIS , operations between people or related entities will be valued at their market value. Market value will be understood to be that which would have been agreed upon by independent persons or entities under conditions of free competition.

Regarding LIS see Law 27/2014, of November 27, on Corporate Tax.

In accordance with article 18 of the LIS the linking relationships occur in the operations carried out between:

  • An entity and its partners or participants,
  • An entity and its legal and de facto directors or administrators,
  • An entity and the spouses or persons united by kinship relations in a direct or collateral line, by consanguinity or affinity up to the third degree of the partners or participants, directors or administrators,
  • An entity and the directors or administrators of another entity, when both entities belong to a group.

When the relationship is defined based on the partner-company relationship, the partner's participation must be equal to or greater than 25 percent.

In the case of remuneration for the exercise of their functions as directors or administrators of entities, the rules of relationship relationships are not followed, because this is expressly established in article 18.2 of the LIS , and therefore said remunerations are excluded from the scope of related-party transactions regulated in article 41 of Law Personal Income Tax .

The Tax Administration may verify that the operations carried out between related persons or entities have been valued at their normal market value and will make, where appropriate, the valuation corrections that may be appropriate with respect to the operations subject to Corporate Tax, at IRPF or the Income Tax of non-residents that had not been valued at their normal market value. To this end, the taxpayer of Personal Income Tax must comply with the documentation obligations of related-party transactions in the terms and conditions established in Chapter V (articles 13 to 16) of the Corporate Tax Regulations. , approved by Royal Decree 634/2015, of July 10 ( BOE of July 11).