A director and major shareholder claims that, due to heart problems, he did not carry out any work for his private limited company. He therefore argues that the customary salary scheme does not apply. The Court of Appeal takes a different view. Letters and emails show that, during the year in question, the director and major shareholder submitted appeals on behalf of the private limited company, made requests and corresponded with the tax authorities. These administrative tasks are sufficient to take the notional salary into account.
Beauty salon via a private limited company
The director-owner’s wife runs a beauty salon. Following her personal bankruptcy in 2016, the director-owner set up two companies to continue running the salon whilst retaining the staff. The trustee did not allow the wife to become a director, so the director assumed that role. According to the wife, he plays solely an advisory and coaching role and does not carry out any actual work. In January 2019, the director was admitted to hospital with heart problems and pneumonia. His GP stated that the atrial fibrillation was triggered by stress and that the director needed to make changes to his lifestyle.
Tax return without wages
The director and major shareholder filed his 2019 income tax return showing a negative income of €2,544. The tax inspector adjusted the return to include a notional salary of €26,470, equal to the salary of the highest-earning employee: his wife. Following an objection, the taxable income is set at €23,220. The director lodges an appeal, arguing that he did not carry out any work due to his health. According to him, the work he did carry out was purely for occupational therapy purposes.
One’s own correspondence as evidence
The file shows that, in 2019, the director and major shareholder was listed as the contact person in the monthly payroll tax returns. In March 2019, he applied on behalf of the holding company for a tax group for VAT purposes, sent information for a hearing and confirmed by email the arrangements made by telephone. In April 2019, he lodged an objection on behalf of the private limited company against a corporation tax assessment, and in November and December he corresponded extensively with the tax inspector regarding that objection.
Explanations are insufficient
The statements from the GP and the spouse do not alter this. These statements concern the director-owner’s health, but do not negate the fact that he actually carried out the administrative tasks. The director-shareholder has not demonstrated that a lower customary salary is appropriate. It cannot be inferred from the statements that he was only capable of performing occupational therapy-related work for which no salary can be received. The appeal is unfounded.
Scope not assessed
It is striking that the court does not assess whether the scope of the work justifies the customary salary. The law is strict: as soon as it is established that the director-shareholder performs any work, the standard amount applies. Does the director-shareholder wish to receive a lower salary? Then he must prove that this is customary for comparable work. By merely submitting medical certificates instead of concrete data on what comparable administrative work is worth, the director-shareholder is missing that opportunity. The outcome does, however, raise questions. A handful of letters and emails results in a taxable salary of over €26,000.