Prior in Tempore Is Not Potior in Iure When It Comes to the Deductibility of Directors’ Remuneration

Eduardo González Fernández.

21/12/2021 Uría Menéndez (

The saga continues when it comes to the deductibility of directors’ remuneration for Corporate Income Tax purposes when it does not meet corporate law requirements. That said, the tax deductibility of the remuneration has been allowed when it falls within the limits set by a company’s general meeting for these purposes.

However, when the remuneration is compensation for the termination of a director’s services relationship with a company, exceeding the limit set by the general meeting may be of less consequence, as article 15.i.1º of the Spanish Corporate Income Tax Law (“CITL”) already limits the deductibility of this type of income. According to this article, compensation exceeding one million euros is not deductible, regardless of what the articles of association provide and the general meeting agrees.

In the case we advised on, the tax inspectorate held that to determine the amount of deductible remuneration covered by the limit set by the general meeting, the payments should be considered in chronological order. This means that if an amount exceeding the limit set by the general meeting was paid in January as compensation, any remuneration the directors received from that date onwards would therefore not be deductible even if the amount the company finally deducted for Corporate Income Tax purposes was below the limit set by the general meeting due to the application of article 15.i.1º of the CITL. Given that in this case it could be concluded that the general meeting intended the limit set to apply to remuneration for the directors’ performance, rather than compensation for the termination of their relationship with the company, we argued that there is no rule that imposes prior tempore potior iure in this type of situation.

Our argument was upheld and the tax inspectorate’s temporal criterion was found to lack a legal basis.

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