B Law & Tax
03 May 2023

Tax advisor: The correct benefit indicator to be computed in the Corporate Tax is the cost of personnel, being this the element that contributes the most added value to the final product

The Superior Court of Justice of Valencia has evaluated whether the valuation of the operations carried out by the Administration is correct, specifically in relation to the profit indicator used, which has been the cost of personnel. The appellant argues that the method of valuation of the net operating profit should be based on total assets instead of personnel costs. Furthermore, they complain that the Tax Inspectorate has not explained why the percentage that determines the market value is based on the simple average of the sample of companies, rather than on the percentages of the individual companies considered.

However, the Chamber states that it cannot add much more to the explanations offered by the Tax Inspection and the Regional Economic Administrative Court, who consider that the cost of personnel is the best indicator of the net margin obtained and, ultimately, of the market value of the services provided in the permanent establishment in Villena. The creation of the permanent establishment was due to the search for specialized personnel, which is responsible for most of the added value of the final product, while it does not appear that large investments in necessary infrastructure have been made according to the actions carried out.

There is no justification for rejecting the appellant’s proposal to use the total assets indicator. Furthermore, there is no reason to disregard the extreme data of the proposed sample when calculating the mean, as these data do not differ significantly from each other. Therefore, it is not understood how eliminating them in a limited sample can improve its reliability. The allegations related to the underground economy are inconclusive, even in the report submitted by the appellant. These allegations would imply that the proposed sample is unreliable or, at least, that the production of the compared companies is highly dependent on outsourcing, which is reflected in the accounting record of “outside services”.

B Law & Tax International Tax & Legal Advisors.


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