Practising a profession through a company is perfectly lawful in Spain, but it is also one of the Spanish Tax Agency's standing audit priorities. Where the inspectors conclude that the arrangement is a sham, the reassessment is often accompanied by a penalty classed as very serious, of between 100 and 150 per cent of the amount left unpaid, on the basis that the company was a fraudulent means. The Spanish Supreme Court's judgment of 4 June 2026 (cassation appeal 1590/2024) closes off that automatic route. A sham finding alone does not justify the aggravated penalty: the tax authorities must show that the company was used to conceal the identity of the person who actually earned the income.
A lawful structure under close scrutiny
Spanish law expressly regulates professional practice through companies in Law 2/2007 on Professional Companies and, more broadly, freedom of enterprise protects the choice of legal form. Even so, the gap between progressive personal income tax and the flat corporate income tax rate has made these structures a recurring target of the Tax Agency's annual control plans.
The tax authorities tend to respond in one of two ways. Where they consider that the company lacks its own staff and resources and that the services, being highly personal, are in reality provided by the professional, they treat the arrangement as a sham under Article 16 of the General Tax Law and attribute the income invoiced by the company directly to the individual. Where the company has genuine substance, they apply the related party rules and adjust the remuneration paid to the professional to market value, which in practice comes close to full tax transparency. And where the accounts make it impossible to separate the income and expenses of company and shareholder, the Supreme Court has even upheld an indirect assessment.
In both scenarios, the reassessment is usually followed by penalty proceedings. In sham cases, the inspectors frequently class the infringement under Article 191 of the General Tax Law as very serious, arguing that interposing the company amounts to a fraudulent means.
What the Supreme Court held
Article 184(3)(c) of the General Tax Law treats as a fraudulent means the use of interposed persons or entities where the offender, in order to conceal their identity, places in the name of a third party the ownership of assets, income or transactions relevant for tax purposes.
The Supreme Court stresses that the provision turns on that purpose of concealment. Where the company forms part of the sham arrangement but does not hide who really earned the income, there is no fraudulent means. The Court draws a clear contrast: a company whose shareholders are the very people who earned the income conceals nothing, whereas a company owned by front men does.
In the case at hand, the shareholders of the vehicle company were the very people who earned the income that the inspectors reassessed, and their identity was known. The Supreme Court therefore concluded that a sham finding cannot operate automatically as grounds for classing the infringement as very serious, and that the tax authorities must give specific reasons showing that the company was interposed in order to prevent or hinder identification of the person who earned the income.
What the judgment does not say
The ruling should not be overstated. It does not make professional companies immune from reassessment, nor does it make sham arrangements unpunishable. It concerns the classification of the infringement: in the case before it, the Supreme Court set aside the lower court's ruling on the penalty and annulled the penalty decision for lack of reasoning. It does not decide how the conduct is to be classed without the aggravating factor. That, in our view and not as a holding of the judgment, will depend, once fraudulent means are excluded, on the remaining criteria of Article 191 of the General Tax Law, in particular whether data was concealed from the tax authorities and the amount of the penalty base, so that the infringement may be classed as minor or serious according to the circumstances.
Nor does it alter the Supreme Court's settled view that, in sham cases, a reasonable interpretation of the law cannot be relied on to exclude liability (Article 179(2)(d) of the General Tax Law). What it does is confirm an increasingly clear line of case law: in penalty matters there are no shortcuts, culpability is never presumed, and each aggravating circumstance requires its own reasoning.
Related party rules and the safe harbour
For professionals operating through a company with genuine substance, the key reference remains Article 18(6) of the Corporate Income Tax Law. It allows the taxpayer to treat the agreed remuneration as market value where an individual professional partner provides services to a related company and three conditions are met:
- more than 75 per cent of the company's income derives from professional activities, and the company has adequate staff and resources;
- the total remuneration of the professional partners for their services to the company is not less than 75 per cent of the company's profit before that remuneration;
- each professional partner's remuneration is determined by reference to the partner's contribution to the company's performance, according to qualitative or quantitative criteria recorded in writing, and is not less than 1.5 times the average salary of the company's employees performing similar functions or, failing that, five times the Spanish public income indicator (IPREM). If this last requirement is not met for one partner, the rule remains available for the others.
A partner and the company are related for this purpose only where the partner holds at least 25 per cent of the company (Article 18(2)). The safe harbour is optional and provides certainty, but at an obvious cost: most of the profit ends up taxed in the hands of the partner, which limits the company's ability to build up reserves. Those who choose not to apply it should have a valuation analysis supporting the remuneration agreed.
Practical implications
In light of the judgment, it would seem advisable, in ongoing proceedings, to check whether the penalty decision gives specific reasons for a purpose of concealment or simply infers it from the sham finding. In the latter case, the very serious classification can be challenged with solid support from the case law, and the financial difference between a 50 per cent penalty and one of 100 per cent or more of the amount left unpaid is considerable.
For professionals operating through a company, prevention rests on three elements: demonstrable staff and resources of its own, a documented remuneration policy consistent with market value, and full transparency as to who the shareholders are and who actually provides the services. Where the tax reassessed per partner and year exceeds EUR 120,000, the analysis must also extend to criminal exposure, where a sham arrangement makes it easier to establish intent.
A professional who acts through a company in which he or she appears in their own name is not hiding. To penalise such a person as though they were, the tax authorities will now have to prove it.
From our offices in Palma de Mallorca and Manacor, Lexon's tax practice advises professionals and professional companies both on the design of their remuneration policy and in tax audits and penalty proceedings before the Spanish tax authorities.
Source: Articles 16, 179(2)(d), 184(3)(c) and 191 of Ley 58/2003, the General Tax Law; Articles 18(2) and 18(6) of Ley 27/2014, on Corporate Income Tax; Ley 2/2007, on Professional Companies; Article 305 of the Spanish Criminal Code; and judgment of the Spanish Supreme Court of 4 June 2026, cassation appeal 1590/2024.
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This article is provided for general information purposes only and reflects the law, administrative doctrine and case law in force at the date of publication. It does not constitute legal or tax advice, nor does it replace the individual analysis of each case.