Deductibility of passenger car expenses and the shareholder's employment relationship

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the deductibility of expenses derived from the acquisition and maintenance of passenger vehicles in companies where the sole shareholder does not hold the status of an employee.

What the DGT has ruled

The query concerned the possibility of fully deducting both the depreciation of a passenger vehicle purchase and its regular expenses, such as fuel, ITV (technical vehicle inspection), and repairs. The DGT has ruled that these expenses are not deductible under the described conditions.

The ruling is based on the fact that, as there is no employment relationship between the sole shareholder and the company, the assumption of these costs by the entity does not correspond to an economic activity linked to income generation, but rather constitutes a distribution of profits. This treatment falls under the provisions of Article 15.1.a) of the Corporate Income Tax Law (LIS).

What this means for you

This ruling has a direct impact on the tax management of companies where the owner is also the sole shareholder and does not appear on the company's payroll. If the company assumes the costs of a passenger vehicle used by the shareholder without an employment contract, the Tax Administration will consider such disbursements as a distribution of profits or a distribution of equity, which nullifies their ability to be deducted for Corporate Income Tax (IS).

What should be done

In this situation, it is necessary to analyze the structure of the relationship between the shareholder and the entity. The deductibility of depreciation and maintenance expenses (fuel, repairs, ITV) is conditional upon the existence of an effective employment relationship. It is recommended to assess the contractual situation of each professional and the nature of the expenses to ensure they comply with current regulations and to avoid tax contingencies.