Recent amendments to the Companies Act and Act 27/2014, of 27 November, on Corporate Income Tax, reopen the debate on the presence of senior executives in a company’s governance body.
Recent amendments to the Companies Act and Act 27/2014, of 27 November, on Corporate Income Tax (the “Tax Act“) have questioned the so called “teoría del vinculo” doctrine and its application in the tax sector.
Through this doctrine labour courts have interpreted that the employment relationship of senior executives, who are also taking part in the administrative board of the company, is superseded by the corporate nature of the second role. Therefore, and despite the existence of a double relationship, labour courts have only recognized the corporate relationship.
Until now, applying this doctrine in tax related matters meant that the remuneration of a senior executive who was also a member of the administrative board, had to be included in the by-laws of the employing company to be tax-deductible. From a labour perspective, the application of the teoría del vínculo doctrine leaves senior executives in a vulnerable position when the company unilaterally terminates the employment agreement, since labour courts will not recognize the labour nature of the executives’ relationship and, hence, will declare that they have no jurisdiction.
In this regard, the amendments to the Tax Act (article 15.e) prevent the application of the teoría del vínculo doctrine inn tax matters. Therefore, the remuneration of those senior executives, who are also in the board, shall always be deductible, unless said remuneration has been settled but contravenes the Companies Act. Furthermore, it is still controversial to determine whether the Companies Act requires the retribution of a senior executive, in a corporate governance role, to be subject to the limitations imposed by the general meetings scheduled in the by-laws, or if, on the contrary, it is a decision of the board.
Additionally, although the amendments to the Companies Act tend to bring the role of the senior executive closer to the role of a member of the board, there is no way to anticipate if this would breach the teoría del vinculo doctrine. Therefore, it is convenient to act with caution until the new regulation can be interpreted by the labour authorities, even if some authors have claimed that this legal doctrine has been superseded.
Consequently, from a labour viewpoint, we suggest not compromising the legal status of senior executives by appointing them as members of the company’s board of directors. This project, aimed at third party and independent roles, shall prevent the salary of a senior executive from appearing in the by-laws, and shall guarantee their protection in the event of being dismissed by the company.