Personal Income Tax exemption for work carried out abroad by directors and board members

The judgment focuses on determining the scope of the expression “employment income received for work effectively carried out abroad” provided for in Article 7.p) of the Personal Income Tax Act in order to determine whether it can be applied to all employment income or only to some, in particular, to employment income derived from an employment or statutory relationship, based on the status of an employee, and to determine, consequently, whether the exemption can be applied to income received by directors and board members.

The TS rules categorically that the Administration’s interpretation of article 7.p) is restrictive and lacks support in a literal, logical, systematic and intended interpretation of the article.

Thus, according to the TS ruling, the exemption provided for in the aforementioned article can be applied to income received by directors and boards members. The foregoing is notwithstanding the fact that the requirements for its application are met and that the duties carried out by the director or board member are executive and management duties and not merely deliberative. In any case, it shall be possible to prove that value or profit has been generated in the foreign entity as a result of the relocation.

Furthermore, the High Court points out that the case subject of the present judgment is different from the one dealt with in the judgment of March 2021, regarding the deliberative functions performed by the directors and board members due to their participation in the board of a foreign subsidiary.

We recommend carrying out a review of the remuneration of directors and board members for the years not time-barred, in order to assess whether it is possible to request the rectification of the personal income tax returns filed and the corresponding refund of undue income.