BackIncome in kind from movable capital that an individual receives as compensation for a related party transaction must be assessed in accordance with corporate income tax rules.
An entity in which two natural person partners have a 50% shareholding assumes several personal expenses of such partners, such as those related to boats, vehicles, real estate and others, which are not linked to the business activity of the entity. These expenses were not declared by the partners as income in kind in their Personal Income Tax (IRPF) returns, but the entity deducted them in the Corporate Income Tax.
The Administration carries out a regularization as it considers that the partners are privately using the assets belonging to the partnership, classifying them as income in kind. The main question is whether this income should be valued in accordance with the IS related-party transaction rules (Article 41 of the Personal Income Tax Law – LIRPF) or according to the special rules for the valuation of income in kind (Article 43 of the LIRPF).
There are two special valuation rules that are closely related to the factual context and the reasons for each particular case. Both taxpayers in their returns to the State Tax Administration Agency (AEAT), and the AEAT itself in its possible tax proceedings, must take into account the circumstances, justification and context in which such income in kind has been received.
In the present case, the legal classification of the income obtained by the partner corresponds to income from movable capital in kind. As regards its valuation, article 43.1 of the Personal Income Tax Law (LIRPF) establishes that income in kind is valued according to its normal market value, without prejudice to certain specificities in the valuation of employment income in kind and capital gains in kind, but these particularities do not apply to income from movable capital in kind.
Given that the special valuation provisions mentioned above are not applicable to this income, and considering that article 43.2 of the LIRPF establishes that, in the case of income in kind, its valuation will be carried out according to the rules established in this Law, the Supreme Court concludes that, in this case, the applicable valuation rules should be those related to related party transactions according to article 41 of the LIRPF, a precept that does not exclude income from movable capital in kind.
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