The amounts owed by the shareholder to the company that increase over time and are not returned may be reclassified by the tax authorities as dividends with the tax consequences derived therefrom.
Our civil and tax law determines that all business is presumed to be onerous, that is to say, with interest. Therefore, proof to the contrary must be provided by the taxpayer of the transaction. And it is very difficult to prove that the contributions and loans are free of charge, since they could be considered as disguised donations, with the consequent high tax cost. Each income or disposition must be documented. On the other hand, the regulation of related-party transactions offers few doubts on how to treat these transactions.
We must therefore draw up an ordinary loan contract stating the repayment terms, interest at market price (or at least the legal interest rate), maturity and the purpose of the loan.
Therefore, we must comply with due diligence with respect to tax requirements, namely.
If it is an ordinary loan contract,
- It is necessary to pay the stamp tax as the transaction is subject to but exempt from stamp tax.
- Each quarter, if the loan is from the partner to the partnership, the partnership must pay the interest and make the withholding on form 123.
- The interest accrued by the partner must be included in his personal income tax as income from movable capital.
- And for the company, the interest paid should be deducted as financial expenses.
When the shareholder does not repay the capital loaned within the agreed deadlines and maturities, the Tax Agency may charge the shareholder with dividend income, with the consequent tax cost, in addition to the corresponding penalty in accordance with the General Tax Law.
When the partnership delivers funds to the partner, generating a current account with partners, the corresponding loan contract must be formalized, complying with the aforementioned formalities.
