Taxation of income in a community of property: DGT criteria

The Directorate General of Taxes (DGT) has issued a relevant criterion regarding how communities of property must be taxed under Personal Income Tax (IRPF). This resolution addresses the nature of these groupings and the methodology for distributing their earnings among the members that compose them.

What the DGT has resolved

The DGT establishes that entities under the income attribution regime do not act as taxpayers themselves for IRPF purposes. Instead, they function as groupings where earnings are attributed directly to their members, maintaining the nature of the source that generates them. For these earnings to be classified as economic activities, the community must organize means of production or human resources on its own account, and all members must assume the business risk.

Regarding the distribution of said income, the Administration indicates that attribution must be carried out following the agreements established between the members, provided that these are documented in a reliable manner. In the absence of known agreements, the attribution will be carried out in equal parts among the members of the community.

What it means for you

If you are part of a community of property, you must be aware that the tax burden falls directly on your individual IRPF tax return. The classification of income as earnings from economic activities will depend on the organizational structure of the community and the participation of all members in the business risk. Furthermore, the way profits are distributed is not arbitrary: either what was documented is followed, or an equitable division is applied.

What is advisable to do

It is fundamental that any agreement regarding the distribution of income among the members of the community of property is duly documented and is reliable before the Tax Administration. A lack of clarity in these agreements could lead to attribution in equal parts, which might not reflect the economic reality of each member. It is recommended to assess the structure of the community to ensure it meets the necessary requirements to be considered an economic activity.