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Supreme Court Ratifies the End of the Linkage Theory in Corporate Tax Deductions.

Baker Tilly Nov 27, 2023

The Supreme Court has issued a crucial ruling on November 2, 2023, confirming a significant change in the deductibility of remuneration for social administrators in Corporate Tax. This decision marks the end of the application of the "linkage theory" and sets a new precedent for considering the remuneration of CEOs with a senior management employment contract, who are also part of the Boards of Directors.

Previously, remuneration for management functions was considered a non-deductible gratuitous benefit when the bylaws stated that the position was unpaid. The "linkage theory" was used to deny the deductibility of both the remuneration and salary as an employee when both linkages existed. The new Supreme Court ruling revolutionizes this practice by establishing that remunerations for CEOs are deductible in Corporate Tax, provided they correspond to a real and effective provision of services, regardless of the so-called "linkage doctrine."

This decision clarifies and puts an end to years of controversy over the deductibility of these remunerations, providing companies with greater certainty in fiscal management. Now, companies can apply deductions more clearly and fairly, based on the actual nature of the services provided by CEOs.

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