5 August, 2014

Changes in the Application of Tax Losses Carried Forward

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Spanish Corporate taxpayers can carry their tax losses forward and offset them against profits in future accounting periods corresponding to the 18 years subsequent to their generation.

It is expected that the Spanish tax reform, currently under process, will introduce the possibility to apply them for an indefinite time period but restricted to 60% of the taxable result obtained prior to their compensation.

✔ The current regulations have only established limits to the application of tax losses carried forward affecting companies whose turnover is of, at least, 20 million Euro (the limit is of 50% of the taxable result prior to the compensation of the tax loss) or 60 million (subject to a limit of 25%).

The periods in which tax losses can be set off are those closed in the subsequent 18 years.

✔ With the new regulations, Spanish Corporate tax payers, irrespective of their turnover, shall only be entitled to offset tax losses against 60% of the taxable profit obtained, with a minimum of 1 Million €. This limitation will affect companies with a turnover below 20 million €, as they are not currently subject to any restriction.

✔ In order to avoid their expiration, tax losses will be applied for an indefinite time period. Although this might look as positive news, unfortunately, there is another side to this coin: the Spanish tax authorities shall be entitled to review the correction of the tax loss, even if it corresponds to a tax period that is time-barred.

Image: Fidelity

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