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Cross-sectional View of the Effects of the Supreme Court Decision of February 27, 2018 on the Remuneration of the Directors of the Capital Companies
From the mercantile point of view, the recent Supreme Court Judgment of 27 February has led to the rejection of the dualist theory of retribution of directors and the imposition of the monistic conception. By way of synthesis, the dualist theory distinguishes between retribution for executive functions and retribution for non-executive functions, considering them, therefore, compatible; while in monist all retribution of administrators must be subject to the requirements to be included within the concept of "retribution of administrators". Specifically, the requirements that such compensation must contemplate are the following:
- Statutory forecast of the remunerated nature: the existence of remuneration must not only be reflected in the bylaws, the remuneration system must also be included. However, some flexibility is allowed, and it is possible to foresee different systems to be chosen by the General Meeting.
- Approval of the maximum annual amount of remunerations, by the General Meeting: said agreement will remain in effect until a new agreement is adopted in that sense, by the Board;
- Approval of the distribution of this amount by the Board of Directors: the different roles and responsibilities of each director must be taken into account, as well as the quantification criteria established in art. 217.4 LSC ("reasonable portion with the importance of the company, the economic situation that it had in each moment and the market standards of comparable companies").
Special attention must be paid to the permanent delegation of functions to a member of the Board of Directors, as established in art. 249 LSC, this delegation must be accompanied by the signing of a contract between the company and the director in whom it is delegated, which must be approved by 2/3 of the members of the Board, and in which it must be fixed, in its case, the remuneration, the different concepts that are remunerated and the amount, all this respecting both the provisions of the bylaws and the maximum amount approved by the Board.
Additionally, any contract that an administrator or director subscribes with the company for tasks other than those of administrator must be approved within the Board; being outside the competence of the Council (Article 220 LSC).
Therefore, the ultimate consequence of this judgment in the corporate sphere is the reinforcement of minority shareholders' control over the amount of remuneration that administrators or directors receive, both for their position and for other functions, since all of them must be communicated to the Board.
- Review of the bylaws and, where appropriate, adapt them to current regulations in accordance with the new interpretation.
- Review if the executive directors have subscribed the corresponding contract with the company and, if not, formalize it in accordance with art. 249
- Review the existence of labor contracts or the rendering of services for functions other than those of administrator, between the administrators and the company, and if they exist, ratify them by the General Meeting.
- If applicable, approve the remuneration of the administrators (or annual global amount) at the General Shareholders' Meeting. Also approve the distribution of the remuneration in the seat of the Board if it has not been provided by statutes, or by agreement of the Board.
- On an annual basis, check whether it is necessary to update the remuneration, adapt the bylaws or submit to the Meeting the corresponding agreement.
Transferred to the fiscal scope, the non-observance of the aforementioned causes the deductibility of the remuneration of the administrative body to falter. This is because any remuneration of administrators who do not comply with the above is considered contrary to the order and, consequently, falls under the assumption foreseen in section f) of art. 15 of the Corporation Tax Law, which lists the non-deductible expenses for the purposes of said tax.
Consequently, in case of contravening the legal system and not collecting in the bylaws or approving the Board of Directors' remuneration, this will certainly entail its non-deductibility for Corporate Tax purposes.
For all these reasons, this new interpretation of the remuneration regime entails a tax risk for any company that does not adapt to it.
From the labor point of view, the recent Judgment of the Supreme Court that is the subject of this article includes what many previous judgments regarding the incompatibility of the positions of senior manager and administrator or counselor, applying the link theory.
Specifically, in the so-called Mahou Sentence (STS of November 13, 2008), the link theory is again confirmed, according to which the classification of the relationship between managers and society is determined by the necessarily commercial nature of this link, regardless of whether the administrators have signed an employment contract with it.
In summary, when an administrator simultaneously carries out tasks inherent to his position ("activities of management, management, administration and representation of the Company") and tasks of senior management or management, the Supreme Court considers that the latter are included within the former and, therefore, the commercial link with society prevails, considering that said position entails intrinsically the management and administration tasks of the company. Consequently, the remuneration that a social administrator could receive for the performance of both positions is considered to be for the same concept and must be subject to the requirements set forth in this article.
All of this leads to the conceptual incompatibility of both remunerations, one of which must prevail: that corresponding to the mercantile relationship, that is, to the position of administrator of the company.
In this area, the only assumption in which the existence of a commercial relationship and a labor relationship is considered compatible at the same time, is that in which the employment relationship takes place under a regime of dependency and of a common nature, by concepts and functions different from those of management and administration of the company and, therefore, completely differentiated from the functions to be developed by an administrator or corporate director.
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