DGT Tightens VAT Treatment of Management Services Provided by Companies

The DGT tightens its approach to management services: companies brought within the scope of VAT

A recent binding ruling by the Directorate-General for Taxes (DGT) has introduced a controversial nuance in the VAT treatment of management services provided through companies. According to the DGT, when a company acts as a director or administrator and receives remuneration, that remuneration is consideration for a service subject to VAT.

This draws a clear distinction from individual directors. In Case C-288/22, the Court of Justice of the European Union (CJEU) accepted that an individual director’s activity may not be independent and may therefore fall outside VAT. The DGT considers that reasoning inapplicable to legal entities because Article 5 of Spanish VAT Law 37/1992 presumes that commercial companies are taxable persons acting as businesses or professionals unless evidence proves otherwise.

A rigid interpretation with practical consequences

The DGT’s position is clear:

• Corporate form matters. Even though a director’s duties have a personal dimension, when a company performs them the activity is treated as an economic activity.
• Mixed holding companies provide the context. The case concerns an entity that does more than passively hold shares and provides management services to its subsidiaries. The DGT therefore applies VAT to the management fees.

The practical consequence is that the management company must issue an invoice charging VAT, which the managed entity must bear. The VAT may be deductible in many cases, but the administrative burden and potential disputes remain.

Criticism of an inflexible approach

This DGT approach raises several concerns:

1. It is disconnected from commercial reality. The substance of the director’s function does not necessarily change because it is performed through a company. Applying VAT solely because of the legal wrapper may be excessively formalistic.
2. It creates uncertainty for business groups. In family holding structures and small or medium-sized groups that centralise management through an intermediary company, the approach may add costs and unnecessary complexity.
3. It departs from the European case-by-case approach. The CJEU has examined whether a director is genuinely independent in the circumstances of each case. The DGT, by contrast, applies an automatic rule: if the service provider is a company, it is a business and VAT applies. That interpretation could be challenged before higher courts.

Could this become a tax disincentive?

The practical result is that using a company to perform management functions becomes less attractive from a tax perspective. A structure previously chosen for organisational efficiency may now trigger an additional indirect tax: VAT on the remuneration.

This is more than a technical adjustment. It may discourage the use of management companies in certain groups and, in practice, treats through indirect taxation a question that calls for a closer examination of the legal nature of directors’ functions.