Subject

Regulations: Art. 42.1 Law Income Tax

Income from work in kind is the use, consumption or obtaining, for personal purposes, of goods, rights or services free of charge or at a price below the normal market price, even when they do not entail a real expense for the person granting them, provided that they derive, directly or indirectly, from personal work or from an employment or statutory relationship.

Simple payment mediation

Benefits in kind must be distinguished from other cases in which there is a simple mediation of payment by the company for expenses incurred by the employee. That is, cases in which the company simply pays an amount on behalf of and at the request of the employee. In these cases, the compensation required by the employee from the company does not consist of the use, consumption or obtaining of goods, rights or services, but rather it is a compensation that the company has the obligation to pay in monetary form, although by virtue of the mandate carried out by the employee, the payment is made to a third party designated by the latter. That is to say, the worker allocates part of his or her monetary remuneration to the acquisition of certain goods, rights or services, but payment for these is made directly by the employer. In these cases, it will be an application of monetary income from work.

However, it should be noted that not always when the employer satisfies or pays amounts to third parties so that they provide their worker with the good, right or service in question, we are in the presence of monetary remuneration, because it is considered that there is payment mediation, since sometimes the remuneration in kind is instrumented through a direct payment from the employer to the third party in compliance with the commitments assumed with its workers, either in the collective agreement or in the employment contract itself and, in such case, the amounts paid by the company to the suppliers would not be considered as a case of payment mediation, in the terms indicated above, but as remuneration in kind agreed in the employment contract, so all the provisions regarding remuneration in kind included in article 42 of the Income Law would apply.

Flexible Compensation Plans

The implementation by a company of a “flexible compensation plan” or “flexible remuneration plan”, under which the entity and its employees agree, either by virtue of a collective agreement or by modifying or novating the existing employment contract, to a change in the composition of the remuneration system, such that monetary remuneration is replaced by remuneration in kind or remuneration in kind is replaced by other different ones. In these cases, we would not be dealing with a case of payment mediation, but rather with remuneration in kind agreed upon in the employment contract or by collective agreement.

Workers subject to this type of plan can, according to their needs and preferences, choose a series of products from a previously established list that may include rights or products as different as: medical insurance, childcare, meal vouchers, transportation, access to sports clubs, special discounts for the enjoyment of products and services (airline tickets, hotels, health services, etc.), training benefits, vehicles, transfer of use of housing, mobile phones, tablets or other computer media, stock options, etc.

In this case, the taxation of the products or services offered by the company to its employees in application of a Flexible Remuneration Plan will be governed by the provisions of articles 42 and 43 of the Income Law. The maximum limit for remuneration in kind may not exceed 30% of the employee's annual total remuneration (article 26.1 of the consolidated text of the Workers' Statute Law, approved by Royal Legislative Decree 2/2015, of 23 October).

However, in order for them to be considered as remuneration in kind and not simply represent a mediation of payments made by the company in respect of expenses incurred by the employee, it is necessary that the remuneration in kind be thus agreed with the workers, either in the collective agreement or in the employment contract, that is, that the company be obliged (based on the agreement or contract) to provide them with the good, right or service.

Note: When the payer of the work performance gives the taxpayer amounts in cash so that the latter can acquire the goods, rights or services, the performance will be considered monetary, so the special rules on remuneration in kind discussed in this section are not applicable to it.