The figure of interposed companies and highly personal activities generates great controversy in the tax field and persecution by the Tax Agency. Although companies are legal tools to organize economic activities, their misuse can lead to significant tax contingencies. Below, we explore how these companies are used, the associated risks, and the legal criteria for their proper implementation.
What is an Interposed Company?
An interposed company(legal entity) is a company created with the purpose of reducing the tax burden by diverting income from highly personal activities that should be billed as a self-employed worker towards a limited company. This allows taxation at a flat rate of 25% in Corporate Income Tax, instead of doing so through the personal income tax (IRPF), whose progressive brackets can reach up to 54% in the case of individuals.
When it is Considered Interposed
Interposition, as the name itself suggests, involves linking a company to your personal activity with the purpose of benefiting from the tax advantages offered by said structure. Generally, when starting a professional activity, there are two main options: registering as self-employed worker (natural person) or creating a company (corporation).
- Lack of Material or Human Resources: The company lacks the structure or employees necessary to carry out the economic activity.
- Total Dependence on the Partner: The partner, founder, or professional administrator is the sole generator of income, using the company as a vehicle to invoice.
- Primarily Tax Purpose: It is established for the sole purpose of reducing taxes without fulfilling the true purpose of a company, such as capitalization and business growth. *Lack of Valid Economic Motive
Self-employed vs Company
Practical Examples of Interposed Companies
Interposed companies usually appear in activities where income depends directly on a single person and not on employees, resources, or a business structure. Below, we explore practical cases of how companies can be used improperly or correctly in sectors such as influencers, doctors, artists, singers, and other professionals.
1. Influencers and Content Creators
Correct Use:
An influencer who works with international brands decides to create a company to manage their advertising contracts, travel, and production equipment. The company hires a team, such as video editors and community managers, and rents a space for recordings. In this case, the company has a reasonable structure and a valid economic motive.
Incorrect Use:
The influencer invoices all their income through a single-person company that has no employees or its own material resources. All content is produced by them and there are no expenses associated with the activity that justify the company's existence. The Tax Agency could determine that the company is merely instrumental and reclassify the income as personal, applying Personal Income Tax (IRPF).
2. Doctors and Healthcare Professionals
Correct Use:
A doctor with a private practice decides to create a company to manage their clinic's income, which has several employees, such as nurses and receptionists. The company also rents a space and uses equipment expensive medical equipment acquired in the company's name. In this case, the corporation has a sufficient structure to operate as an independent entity.
Incorrect Use:
A doctor works in different clinics and invoices their services through a single-person corporation without employees or own equipment. The Tax Agency could consider that the corporation does not have a valid economic motive and that the income truly belongs to the professional, which could lead to a tax reclassification.
3. Artists and Actors
Correct Use:
An actor participating in national and international productions creates a corporation to manage their schedule and contracts. The corporation hires a personal assistant and an agent, and assumes the costs of transportation, lodging, and wardrobe for each project. This structure makes sense from a tax and organizational standpoint.
Incorrect Use:
The actor uses a corporation to invoice their income without hiring anyone or justifying real expenses associated with the activity. Additionally, they pay for personal expenses, such as rent and leisure travel, with the corporation's money.
4. Singers and Musicians
Correct Use:
A successful singer creates a corporation to manage the earnings from their concerts, royalties, and brand deals. They hire a team that includes a manager, musicians, sound technicians, and tour personnel. The corporation also invests in instruments and recording equipment.
Incorrect Use:
A singer uses a corporation to invoice concert income, but does not hire anyone or have material expenses. The Tax Agency could consider that the income actually corresponds to the individual, since the corporation provides no additional value.
Options to Avoid the Interposition of Corporations
To prevent the Tax Agency from considering a corporation as interposed, it is essential to structure it properly and demonstrate its independence economic. Here are the main strategies to achieve this:
1. Incorporating Partners
Including other partners in the corporation helps demonstrate that it does not depend exclusively on one person to generate income. Each partner can contribute capital, experience, or contacts that enrich the business activity.
2. Hiring Employees
Having hired staff is key to showing that the corporation has its own human resources. Employees must perform tasks directly related to the economic activity.
3. Having an Office or Workspace
Having an adequate physical space, such as an office or a local establishment, is an indicator that the corporation is not a shell company and has a real operational base.
4. Reducing Dependence on the Founding Partner
The corporation must be able to operate without the founding partner being the sole generator of income. This implies delegating tasks and having resources that do not depend on their direct work.
5. Justifying a Valid Economic Reason
The corporation must have a clear business purpose, such as reinvesting profits, expanding, or developing new projects, beyond reducing taxes.
6. Documenting and Differentiating Expenses
It is essential that the corporation's expenses are related to its economic activity. Avoid using company funds for personal purposes and document any transaction between the partner and the company.
Real Cases of Sanctions for Corporate Interposition
El Rubius:
Rubén Doblas, known as El Rubius, was investigated by the Tax Agency in 2018. The Tax Agency determined that his corporation lacked material and human structure and that it depended entirely on his personal activity. This led the Tax Agency to reclassify his income as personal, applying the Personal Income Tax (IRPF) (up to 47%) instead of 25% Corporate Income Tax. This case was one of the reasons that prompted his move to Andorra in 2021, seeking a more favorable tax environment.
Joaquín Sabina:
The singer Joaquín Sabina was ordered to pay 2.5 million euros to the Tax Agency for tax irregularities related to his royalty income and the use of three corporations: Ultramarinos Finos SL, Relatores SL, and El pan de mis niñas SL. These entities generated more than 12 million euros in revenue, which the Tax Agency considered should be taxed through the artist's personal income tax rather than Corporate Income Tax.
1. Why does the Tax Agency crack down so hard on interposed corporations?
The Tax Agency pays special attention to interposed corporations because they are a relatively common strategy to unduly reduce the tax burden. These types of structures tend to be easy to identify. Furthermore, income usually depends exclusively on a single individual, which facilitates inspection and sanctioning.
2. What penalties can I face if I have an interposed corporation?
Sanctions may include:
- The reclassification of income as employment earnings, applying the corresponding personal income tax.
- Fines of up to 150% of the undeclared amount.
- Regularization of undue deductions made in Corporate Income Tax or VAT.
- Potential late-payment interest accumulated from the date taxes should have been correctly paid.
3. Which sectors most commonly use interposed corporations?
The most common sectors are those where income depends directly on the individual's personal activity, such as:
- Influencers and content creators.
- Doctors and healthcare professionals.
- Artists, singers, and actors.
- Consultants and independent advisors.
- Lawyers, Notaries, etc.
5. How does the Tax Agency detect an interposed corporation?
The Tax Agency uses several criteria to identify these corporations:
- Lack of employees or material resources to carry out the activity.
- Absence of expenses associated with a real business activity.
- Total dependence of income on the work of the sole partner.
- Use of the corporation to pay for personal expenses, such as cars, housing, or travel.
- Comparison between billing volume and the declared business structure.
6. What can I do to prevent my corporation from being considered interposed?
- Hire employees and have material resources available.
- Have a suitable local establishment or physical space.
- Establish market-rate compensation for the services you provide to the corporation.
- Properly document transactions and maintain accurate financial records.
- Consult with a specialized tax advisor to structure your activity correctly.
4. What is a shell company?
Conclusion
In the tax field, the figure of interposed corporations is a topic that combines legal opportunities with risks. While corporations are valid tools for structuring economic activities, it is essential to use them for legitimate purposes, respecting regulations and avoiding strategies that could be interpreted as tax evasion.
The key to avoiding problems with the Tax Agency lies in demonstrating that the corporation fulfills a real economic purpose, that it has the necessary human and material resources, and that it does not depend exclusively on the partner to operate. The correct implementation of these structures can provide tax and legal advantages which is why a good tax advisor who develops such creative tax "strategy" will make the legal or evasive difference.
