From a tax perspective, this payment of compensation is clearly income generated by an economic activity subject to Spanish income tax.
The question that arises is whether a commercial agent can claim the 30% reduction provided for in the Personal Income Tax Law in relation to this compensation received from the company. In this regard, the Law provides that net income from economic activities generated over a period of more than two years, as well as that which is classified by law as having been obtained in a manner that is clearly irregular over time, will be reduced by 30%, when in both cases they are attributed to a single tax period.
The Regulations implementing the Personal Income Tax Law define as manifestly irregular income, inter alia, payments for the termination of a commercial activity or for economic rights of an indefinite duration.
In a recent binding consultation, the Spanish Tax Authority (the AEAT) confirmed its position and rejected the application of the 30% reduction to the compensation payable to a retired commercial agent. In this regard, the AEAT noted that under the provisions of the Commercial Agency Contract Law the payment of the compensation was not based on the cessation of the commercial activity, but on the termination of the contractual relationship. Moreover, the payment of the compensation cannot be regarded as an indemnity for economic rights of an indefinite duration either.
Moreover, the right to compensation did not arise over a period of more than two years, but at the time of termination of the contractual relationship.
Therefore, a commercial agent who receives compensation for customers must declare it for personal income tax purposes without being able to apply the 30% reduction of the net amount.
Another question that arises is whether the amount of the compensation is subject to VAT. On this point there is a dispute between the AEAT and the Spanish courts responsible for reviewing the former’s decisions.
While the AEAT considers that the compensation paid to commercial agents is remuneration deferred over time for the services rendered, the Spanish courts view it as paid to compensate for the future profits that the company will make through the customers found by the departing agent.
In this case the courts’ approach is clearly the correct one, since it reflects the legal definition of compensation for customers laid down in the Commercial Agency Contract Law.
In short, it is clear that VAT should not be charged on compensation paid by a company to a commercial agent for the customers found by the latter.