Companies providing professional services, related-party transactions and sham transactions: is there room for the lawful transformation of income?

Abstract

This paper examines the possibility of transforming income derived from professional activities into capital income through the use of corporate structures. While such arrangements are, in principle, lawful, the paper analyses their main legal and tax advantages, as well as the limits arising from anti-abuse rules. In particular, it explores the approach of the tax authorities through the characterization of arrangements as sham transactions and the application of transfer pricing rules, highlighting that both mechanisms tend, in practice, to produce a tax transparency effect that is not always justified. It also analyses the safe harbour rule in Article 18(6) of the Corporate Income Tax Law, emphasising its structural limitations. The paper concludes that the scope for income transformation is limited and largely dependent on the existence of genuine economic substance. It closes with a critical reflection on the coherence of the system and the need to strengthen legal certainty.