The remuneration theory

Thierry, can you explain to us what the remuneration theory is?

The remuneration theory is a concept used by the tax administration to assess whether a company’s expenses related to granting benefits to its directors or employees can be considered as tax-deductible professional expenses.

Can you give us a concrete example of how this theory is applied?

For instance, if a company provides a residence to one of its directors, the tax authorities may request evidence that this benefit is the counterpart for actual services rendered by that director. If no such evidence is provided, the expense may be denied as a deduction.

What other types of expenses fall under this theory?

This includes stock option grants, subcontracting invoices, or management fees. The tax administration always requires clear and detailed proof of services performed in exchange for such expenses.

What can a company do to protect itself from deduction refusals?

It is essential to properly prepare and document all expenses. This includes drafting detailed management agreements and keeping accurate records of the services rendered. These documents must be available during tax audits.

In conclusion, what advice would you give to taxpayers?

I would advise them to always act as if they were dealing with a third party, even if they know the individuals involved well. By observing these precautions, they should be able to avoid issues during tax audits.