Partners must demonstrate independence and own resources to charge VAT

The nature of the relationship between a partner and their company is a recurring point of friction in tax inspections. The mere issuance of an invoice is not enough for a provision of services to be considered subject to Value Added Tax (VAT). The Dirección General de Tributos (DGT) has specified the necessary elements to distinguish between an independent business activity and an employment relationship.

What the DGT has ruled

To determine whether services provided by a partner are subject to VAT, the administration requires a detailed analysis of the provider's autonomy. The ruling establishes that the key lies in the existence of independence from the company, evaluating three fundamental indicators:

• Organization of own resources: The partner must have their own material and human resources to execute the activity.
• Assumption of economic risk: Remuneration cannot be exclusively linked to the company's results or turnover; instead, the partner must assume the possibility of their own losses or profits.
• Responsibility towards third parties: It must be assessed who is responsible for the obligations arising from the activity.

If the partner is subject to the company's organizational criteria, does not assume their own economic risks, and the entity is responsible to third parties, the relationship will be classified as employment-based, falling outside the scope of VAT.

What this means for you

If you are a partner in an entity and provide services to it, the mere existence of a service contract does not guarantee the liability for the tax. If the company exercises organizational control over your activity and you do not have independent means, the Tax Agency (Hacienda) could consider your relationship to be employment-based. This would imply that charging VAT would be improper and that the activity should be taxed under the Personal Income Tax (IRPF) withholding regime applicable to employees.

What should be done

It is necessary to evaluate the operational reality of the provision of services. Companies must analyze whether the partners invoicing services meet the requirements of independence and assumption of risk. Assessing each case individually allows for determining whether the structure of the service provision complies with the regulations of Law 37/1992 and Directive 2006/112/EC, avoiding risks due to the incorrect application of the tax.