If a shareholder uses a company asset free of charge, the TEAC establishes a very practical rule to determine how it is taxed under the shareholder’s Personal Income Tax (IRPF)

There are two scenarios:

• Case A – Company asset used in the ordinary course of business:
  If the asset is one that the company would normally exploit (for example, a boat rental company and the shareholder takes a boat for private use over a weekend), the transfer pricing rules apply under Article 41 of the Personal Income Tax Law (LIRPF). This means that the company must report the service/sale as income, while being able to deduct the related expenses. For the shareholder, in most cases, the receipt of this related-party service will not be considered taxable income, although each specific situation must be carefully analyzed.

In this case, it is advisable to gather evidence (price lists, comparables, pricing policies) to support the market value comparable to prices charged to clients.

• Case B – Company asset acquired for the shareholder’s personal use and enjoyment:
  If the asset has essentially been purchased for the shareholder’s personal use (e.g., a construction company buys a yacht solely for the shareholder), it is considered a benefit in kind for the shareholder and is taxed as movable capital income under Article 25.1.d of the LIRPF, valued in accordance with Article 43 of the LIRPF. The court considers that Article 25.1.d LIRPF “is a true catch-all provision aimed at ensuring that shareholders are taxed, in a comprehensive and residual manner, on all income—whether monetary or in kind—that they may have received due to their status as shareholders and which cannot be included under the preceding sections” of Article 25.

For the company, this is treated as a return on equity, similar to a distribution of dividends or reserves, with no deductible expenses allowed for corporate tax purposes. For the shareholder, it constitutes taxable income.

Why is the Supreme Court (TS)’s ruling important?

Because it resolves a common issue: how to value and report the free use of a company asset by a shareholder. The key question is no longer “is there a shareholder-company relationship?”, but rather what type of asset it is and why the company holds it. In both cases, the valuation must be at market value.

Drafted by: Arc Associats

First publication date: November 10, 2025