A director manages, a company works
Without being aware of it, business leaders often have a double role. On the one
hand, they run a company; on the other hand, they also carry out the activities
of the company. That distinction can be very important when a father-manager
pays salary to his son to help him with his tasks.
Son helps dad
A is the director of a business in the cultivation, processing and spinning of
textile fibers (flax). For the assessment years 2008 and 2009, A submits a tax
return together with his wife, in which A proves his actual professional
expenses. Those costs mainly consist of the payment of wages to his son M. for
services which, according to A, are part of his professional activity as a
director.
An individual salary slip 281.10 with a summary salary statement was
drafted.
For assessment year 2008, the amount allocated to the son amounted
to 3.750 euros and for assessment year 2009 it was 19.200 euros. A's
remuneration was EUR 59.494,44 in both years.
The son's tasks include the
maintenance of the flax processing machines and the monitoring of the production
process: harvesting, processing and delivery.
However, the tax authorities reject the deduction of the remuneration, because
this would not concern costs incurred to obtain or maintain the remuneration as
a company director.
Objection is filed and rejected. The case comes before the Court of First
Instance and then goes to the Court of Appeal of Ghent, where A is proven right.
But the tax authorities go to the Court of Cassation, which breaks the earlier
judgment and sends the case back to the Brussels Court of Appeal.
Who did the son work for?
The tax authorities state that a director can only deduct the remuneration of
his son as a professional expense if the son's activities can be seen as an aid
to the specific activities of the parent in the performance of his mandate as a
director: the costs are then made in order to obtain a remuneration as a company
director.
It is not disputed here that the son did not help with
'managing'.
The tax authorities believe that the distinction between the tasks of the
company and the tasks of the director should be considered. When a company
director is engaged in the actual activity of the company, he acts as the
company. So the tasks performed by the son did not constitute help for the
father, but for the company.
The taxpayers believe that the law does not contain a condition whereby a
'qualitative assessment' must be made, depending on the nature of the activity.
It is certain that the son helped the father and that he received a salary for
that help.
Cassation
The Court of Appeal of Brussels, which hands the case to the Court of Cassation,
finds that A indeed not only 'managed' the company, but that he also performed
many other tasks. That was also the reason that the Ghent court allowed the
deduction of the salary: after all, the son helped his father with those other
tasks.
But the Court of Cassation ruled that Ghent should have checked whether the
son's activities benefited the director or the company.
The Brussels Court is
therefore looking at the case with that assignment in mind.
The court can only conclude that the son was involved in the maintenance of the
flax processing machines and the monitoring of the production process. He was
not concerned with tasks such as planning, strategy, organization or management.
The Brussels Court of Appeal accepts that A's range of tasks was not limited to
mere meeting and paperwork or to mere acts of management, but that he was also
concerned with the core tasks of his company (the statutory activity itself).
However, the court must conclude that the tasks performed by son M. almost
exclusively benefited the company, since they were part of the statutory
activity of the company, and he therefore did not help with the management.
M.'s salary is not an expense incurred to obtain or maintain the remuneration of
a director, but an expense that is specific to the company's activity. The
activities performed cannot be regarded as an aid to the specific activities of
the parent as a company director in the performance of his mandate. The
deduction is therefore rejected, notwithstanding the fact that the Court of
Appeal itself still considers that A could also benefit from the tasks performed
by the son: the tasks performed by M. ensure that A has more time left for his
tasks of planning, strategic thinking, organization, etc.