Judgment summary
BAA Legal & Tax Advisors, S.L.P. challenged a resolution of the Tribunal Económico-Administrativo Regional de Madrid (TEAR) of 29/06/2022, which had dismissed its economic-administrative claims against Corporate Income Tax (Impuesto sobre Sociedades) settlement agreements for 2017 and 2018.
The assessments arose from a tax inspection that identified a related-party transaction between the company and its sole director and majority shareholder (90%), Mr Fructuoso, whose spouse, Doña Ramona, held the remaining 10%. The Tax Agency (AEAT) considered that the retributions paid to Mr Fructuoso were far below market value given that almost all of the company's income derived from his personal, direct activity.
Two separate acts ("Actas") were issued: one documenting the market-value correction of the related-party transaction (primary and secondary adjustments) and another documenting the remainder of the tax regularisation, including disallowed expenses.
The Sala, applying doctrine previously set out in its own judgment nº 310/2026 of 03/06/2026 concerning a related company with the same director, dismissed the procedural objections but partially upheld the substantive challenge, annulling only the valuation correction of the related-party transaction.
Background
BAA Legal & Tax Advisors, S.L.P. is registered under IAE heading 842 ("Servicios financieros y contables") and continued the activities of its predecessor, BEMM & Asociados SL. Mr Fructuoso is the company's sole administrator and holds 90% of its capital; his spouse, Doña Ramona, holds the remaining 10%.
On 13/07/2020 the AEAT began inspection proceedings regarding Corporate Income Tax and withholdings for 2017 and 2018. On 21/01/2022 two acts of disagreement were issued: Acta A02-NUM001, correcting the valuation of the related-party transaction between the company and Mr Fructuoso, and Acta A02-NUM002, regularising the remaining elements of the company's tax position, including the same valuation correction.
The inspection found that the company's income derived almost entirely from Mr Fructuoso's direct and personal activity, while his declared retribution was notably lower than the amounts invoiced by the company to third parties. This led to a primary adjustment decreasing the taxable base by 82,309.97 euros (2017) and 124,536.08 euros (2018), and a secondary adjustment increasing the taxable base by 8,231.00 euros (2017) and 12,453.61 euros (2018), together with disallowance of certain non-deductible expenses.
The TEAR dismissed the economic-administrative claims (accumulated) on 29/06/2022, upholding the procedure followed (simultaneous inspection of related parties, two separate acts, no requirement to notify Doña Ramona) and the valuation method and secondary adjustment applied by the AEAT.
Core dispute
The company sought annulment of the TEAR resolution and the underlying settlement agreements on both procedural and substantive grounds.
Procedurally, it argued: nullity for failure to notify the settlement agreements to the minority shareholder, Doña Ramona; that two different vinculaciones (with different market values) should have been distinguished; that issuing two separate settlement agreements for the same tax and period caused indefensión; that the procedure required waiting for firmness of the market-value correction before regularising other related parties; and that documentation (contracts, invoices, other companies' liquidation agreements) was missing from the file.
Substantively, the company disputed the existence and characterisation of a related-party transaction with Mr Fructuoso, denying that his services were of a strictly personal ("personalísimo") nature, given that the company employed qualified staff and also engaged an independent professional. It challenged the calculation of the market value, arguing that the comparable uncontrolled price method was misapplied because it effectively transferred almost all company income to the individual without proper comparability analysis under Article 18 of the Corporate Income Tax Law (LIS) and OECD guidelines. It also challenged the secondary adjustment, arguing restitution had occurred, and alleged double taxation because non-deductible expenses were also imputed to the shareholder.
The Abogacía del Estado defended the resolution, submitting that Article 18 LIS requires valuation of the related-party operation, not of every vinculación, and that no operations requiring separate valuation had been shown between the company and Doña Ramona, who was not the party regularised.
Court findings
On procedural matters, the Sala followed established Tribunal Supremo case law (including STS 18 May 2020, rec. 6187/2017; STS 6 June 2022, rec. 2608/2020; STS 27 October 2023, rec. 3445/2022; STS 22 July 2024, rec. 4469/2021) holding that the requirement to await firmness of the liquidation before regularising related parties (Article 18.12 LIS and Article 19 RIS, formerly Article 16.9 TRLIS and Article 21 RIS) applies only where inspection proceedings are opened against a single related party. Where, as here, simultaneous inspection proceedings were conducted against both the company and Mr Fructuoso, each could defend their own interests in their own procedure, so no infringement of defence rights arose.
The Sala held that notification obligations concern only the related persons or entities affected by the valuation, here the company and Mr Fructuoso; there was no obligation to notify Doña Ramona, who was not party to the valued operation. The issuing of two separate acts (Actas) was found consistent with Article 101.4.b) LGT and Article 19 of the Corporate Income Tax Regulation (RIS), since the valuation correction was not the sole object of the regularisation.
On the substance, the Sala accepted, in line with its own precedent concerning related companies with the same director, that Mr Fructuoso was the essential and visible element behind the services invoiced to clients, given his German nationality, legal qualification and market expertise. However, it found the comparable uncontrolled price method as applied by the Inspection to be inadequate, because the company employed qualified staff (an "abogada mercantilista" and an "abogada fiscalista") and also remunerated an independent professional, whose retributions were specified, thereby providing added value beyond mere auxiliary support. Attributing practically all of the company's net income to the shareholder was therefore not admissible, and the valuation method used did not correctly value the related-party transaction.
The Sala found the remaining aspects of the tax regularisation, including the disallowance of non-deductible expenses, unaffected by this conclusion and not adequately challenged by the appellant, who bore the burden of proof under Article 105.1 LGT and Article 217 LEC.
Outcome
The appeal was partially upheld. The Sala declared the TEAR resolution and the underlying settlement agreements not in accordance with law, and annulled them only insofar as they concerned the valuation correction of the related-party transaction between BAA Legal & Tax Advisors, S.L.P. and Mr Fructuoso.
All other aspects of the challenged administrative action, unaffected by this partial annulment, were confirmed. No order was made as to costs, given the partial nature of the estimation.
Tp method highlighted
The AEAT applied the comparable uncontrolled price method ("método del precio libre comparable") under Article 18.4.a) LIS, using an internal comparable: it equated the value of the services rendered by Mr Fructuoso to the company with the value of the services the company invoiced to its clients, adjusted by deducting the expenses paid by the company that were necessary for providing the service (excluding the retributions paid to Mr Fructuoso himself).
The Sala found this method inadequate because it failed to properly recognise the added value contributed by the company's own qualified personnel (two employed lawyers) and an independent professional it remunerated, whose services were not of a low-value, merely auxiliary nature under OECD Guidelines and related EU Joint Transfer Pricing Forum criteria. As a result, the valuation improperly attributed almost the entirety of the company's net income to the shareholder, without correctly accounting for the value added by the company's other professional resources.
Major issues / areas of contention
- Whether the tax authority had to await firmness of the related-party valuation before regularising the situation of another related party, where simultaneous inspection proceedings were opened against both the company and its sole director.
- Whether failure to notify the settlement agreements to a minority shareholder (10% holder, not party to the valued transaction) caused indefensión.
- Whether issuing two separate settlement acts (one for the valuation correction, one for the remaining tax elements) for the same tax and period was procedurally valid.
- Whether the services provided by the sole director and majority shareholder to the company were of a strictly personal ("personalísimo") nature justifying application of related-party transaction rules under Article 18 LIS.
- Whether the comparable uncontrolled price method, as applied by the Inspection using an internal comparable, correctly valued the related-party transaction given the company's own employed professionals and an independent contracted professional.
- Whether the secondary adjustment to the taxable base was correctly applied in the absence of proven patrimonial restitution.
- Whether the inclusion of non-deductible expenses in both the company's and the individual's tax bases amounted to double taxation.
- Whether the disallowance of certain expenses for lack of documentary justification or lack of correlation with income was properly reasoned and unchallenged by the appellant.