Invoicing from a partner to a professional firm 75

What is the 75% rule in partner-professional company invoicing?

When a professional (lawyer, architect, consultant, doctor…) provides their services through a commercial company in which they are a partner, the Tax Agency requires a minimum correlation between what the company earns and what the partner invoices or receives for their work. This correlation is what is known as the 75% rule: the joint remuneration of all professional partners cannot be less than 75% of the company’s profit before deducting such remuneration.

This rule stems from Article 18.6 of Law 27/2014 on Corporate Income Tax, and functions as a “safe harbor”: if met, the taxpayer can consider the partner-company related-party transaction to be valued at market value (arm’s length) without needing to justify anything further during a tax audit.

Requirements for applying the 75% criterion

For the partner’s invoicing to the professional company to qualify under this regime and avoid issues with the Tax Agency, the following conditions must be met simultaneously:

• More than 75% of the company’s revenue must derive from the exercise of professional activities.
• The company must have adequate material and human resources to carry out the activity (it cannot be a mere “shell company” with no real structure).
• The total remuneration paid to all professional partners cannot be less than 75% of the financial year’s profit prior to deducting that remuneration.
• The remuneration of each individual partner must be set based on their actual contribution to the company’s performance, using qualitative and/or quantitative criteria documented in writing.
• This individual remuneration cannot be less than 1.5 times the average salary of employees performing similar duties, or if there are no comparable employees, 5 times the IPREM (Public Multiple-Effects Income Indicator).

How to calculate the base to which the 75% is applied

The calculation starts from the company’s accounting profit before deducting professional partners’ remuneration. The minimum percentage is applied to that figure:

Minimum partner remuneration = 75% × (Profit before professional partners’ remuneration)

If the company distributes below that threshold, it is no longer covered by the legal safe harbor, although this does not automatically mean the Tax Agency will issue a tax assessment: it simply loses the presumption that the transaction is at market value.

When even meeting the 75% threshold is not enough

This is the most delicate point, and the one that generates the most inquiries among advisors and taxpayers. According to the TEAC (Central Economic-Administrative Court) ruling of March 2, 2016, when the service provided by the individual partner to the company is substantially the same as that provided by the company to third parties, and the company lacks its own resources to provide it without the essential participation of the partner (meaning it contributes no relevant added value), the Tax Agency may consider the transaction between the partner and the end client to be directly comparable, without needing to apply any valuation adjustment simply because the company exists.

In practice, this means that some audits have gone as far as allocating up to 100% of the profit to the partner under Personal Income Tax (IRPF), even when Article 18.6 and the 75% threshold were literally met. The “added value” criterion required by the TEAC is not defined in any regulation, leaving significant leeway for interpretation and litigation in the hands of the Tax Administration.

Consequences of improperly adjusting partner-company invoicing

If the Tax Agency considers that the professional partner’s remuneration does not reflect market value, the consequences may include:

• Adjustment of the partner’s personal income tax (IRPF), allocating part or all of the corporate profit to them.
• Penalties for tax underpayment.
• Late payment interest accrued from the adjusted tax year.
• A proceeding that, if appealed through judicial-administrative channels, can drag on for 8 to 10 years before obtaining a final judicial ruling.

Practical recommendations

• Document in writing the criteria for distributing remuneration among partners (contribution, hours, client portfolio, etc.).
• Prove that the company possesses real material and human resources: office, support staff, tools, internal administrative management.
• Review annually to ensure that the joint remuneration of professional partners does not fall below 75% of profit before remuneration.
• Pay special attention to the TEAC criterion on “added value” when the company has little structure and the service provided to clients is practically identical to that provided by the partner.
• If in doubt, consider submitting a binding tax ruling request to the DGT (Directorate-General for Taxes) or seeking advice from a specialist in related-party transactions taxation.

Frequently asked questions

What happens if my company distributes less than 75%?
It loses the legal safe harbor protection, but it does not automatically trigger an adjustment: the Tax Agency would have to prove that the remuneration does not reflect market value.

Is the 75% rule applied partner-by-partner or collectively?
It is applied first collectively to all professional partners based on profit before remuneration, and then specific rules apply (1.5 times the average salary or 5 times the IPREM) for each individual partner.

Does meeting the 75% threshold protect me from any tax audit?
Not always. The 2016 TEAC criterion allows the Tax Administration to look beyond the numbers if it considers that the company adds no real value, even if the legal percentage threshold has been met.