For many years, a long list of multinational groups have offered share-based incentives to their employees. In this context the compensation is often paid by an entity (the entity offering the incentive, which is usually the group’s parent company) that is not the employer. Sometimes the payer (parent company) does not charge the cost of the compensation to the subsidiary employing the worker.
In ruling V2197-18, dated July 24, 2018, the Directorate-General for Taxes examined exactly this case involving a French parent company that had implemented plans awarding shares at no cost to certain senior managers and salaried employees of the various companies belonging to the group, including employees of a Spanish subsidiary. On this occasion, the French parent company did not charge any cost in respect of these plans to its subsidiaries.
Starting out from the standard determined by the Spanish Accounting and Audit Institute (ICAC), the Directorate-General for Taxes concluded that the Spanish subsidiary had to recognize a personnel expense for accounting purposes by recording it in equity, at the reasonable value of the equity instruments of its employees as of the date of the grant agreement, even if the French parent company does not bill the costs of the plan to it.
Even though that expense will not be deductible when it is recognized, it will be when the award of the equity instruments by the French company to the employees takes place.
Although it falls outside this ruling, it must be remembered that even though the payer of the income will be a nonresident entity other than the employer, the withholding tax will have to be deducted and paid over by the Spanish subsidiary, because it is an item of compensation paid by a controlled company.