Partners providing services to their company must demonstrate independence to apply VAT

The nature of the relationship between a partner and their company is a critical point for determining the tax burden. The issuance of an invoice is not enough for a provision of services to be subject to Value Added Tax (IVA); it is necessary to prove that the activity is carried out with autonomy and not under a structure of labor subordination.

What the DGT has ruled

The Dirección General de Tributos (DGT) has established that to determine whether services provided by a partner are subject to VAT, the existence of independence from the company must be analyzed. The criterion is based on the distinction between an autonomous business activity and an employment relationship.

For the activity to be subject to VAT, certain elements of independence must be present, such as:

• Organization of own resources: The partner must have their own material and human resources to execute the activity.
• Assumption of economic risk: Remuneration must be linked to results or turnover, and not be a guaranteed fixed remuneration.
• Responsibility towards third parties: The partner must be responsible for their actions and not be covered exclusively by the company's structure.

If the partner acts under the organizational criteria of the company, does not assume risks, and the entity is the one responding to third parties, the relationship will be considered employment-based and, therefore, will not be subject to VAT.

What it means for you

If you are a partner of an entity and provide services on a regular basis, the classification of that activity will determine your treatment regarding VAT, the Economic Activities Tax (IAE), and Personal Income Tax (IRPF). An erroneous classification can lead to tax contingencies if the Administration considers that the provision is, in reality, a disguised employment relationship.

Companies must evaluate the reality of these provisions to prevent the company from being held responsible for an incorrect application of the tax.

What should be done

It is necessary to analyze the actual operation of the provision of services. It must be verified whether the partner has the necessary infrastructure to operate independently and whether their remuneration effectively reflects a business risk. Each situation requires a detailed analysis of contracts, resource management, and invoicing methods to ensure the correct application of Law 37/1992 on VAT and Directive 2006/112/EC.