In the new catalogue of avoidance schemes, the Internal Revenue Service (SII) has included, as a case to be closely monitored in audits, professional partnerships as a method to reduce the Global Complementary Tax of one of the partners. This inclusion is understandable considering the growth of such entities since the VAT exemption for services provided by this type of taxpayer was introduced.
However, it is important to consider several points that may not be entirely evident from the case presented.
Indeed, the structure described by the SII may also occur in other types of companies that are not necessarily classified as professional partnerships. In this regard, and following the logic of the Catalogue, the inclusion of this case responds more to a general preventive purpose, considering the current context and the significant growth of professional partnerships in recent years. Nevertheless, this does not prevent the same avoidance criteria from being applied to similar cases where the company used to distribute profits among partners could be, for example, a joint-stock company that does not qualify as a professional partnership.
On the other hand, it is incorrect to assume that the creation of such entities is always intended for avoidance purposes. Typically, they are used for the legitimate provision of professional services through a legal structure that limits the liability of partners and is expressly exempt from VAT. This constitutes a clear example of a reasonable and legitimate choice of conduct by taxpayers, as established within the tax legislation itself.
Accordingly, it is of utmost importance that the interpretation derived from the inclusion of this case in the Catalogue is not applied broadly without a thorough case-by-case analysis by the tax authority. In this regard, it is essential to recall the principle of good faith governing tax matters, explicitly established in the regulation of the General Anti-Avoidance Rule (GAAR), which obliges the SII to recognize the effects arising from legal acts or transactions as structured by taxpayers. In this specific case, this implies recognizing that when a professional provides services through a professional partnership, it is done with the intention of associating with other professionals and sharing the profits of the business.
Finally, it should not be confused which regulatory framework the SII must apply when evaluating whether a specific case constitutes avoidance, or alternatively, whether the requirements for VAT exemption have not been met. While the case focuses on reducing the income tax burden of one partner by distributing the company’s profits among more individuals, it may also occur that the benefiting partner is the only one providing services through the company. In such a scenario, the requirement that “all partners (whether individuals or other professional partnerships) must actively exercise their profession within the company, and it is not acceptable for one or more partners to contribute only capital” (see Circular No. 50 of 2022) would not be fulfilled. In such cases, it is neither necessary nor appropriate to apply the GAAR procedure to challenge the VAT exemption; instead, the standard audit process should be followed, including requests for information, potential summons, assessment, and tax determination.