Spanish accounting of Social security reliefs in ERTE situations

In a recent resolution, the Spanish Accounting and Audit Institute (ICAC – Nº 1 BOICAC 122 / June 2020) resolves on the accounting treatment of the costs to be assumed by companies in Temporary Employee Redundancy schemes (“ERTE”) in which they can significantly reduce their contributions to the Social security.

This organism considers that the suspension of the contracts and reductions adopted as a consequence of COVID19 are of an extraordinary nature, due to the economic effects deriving from it, and that the Social security reliefs have to be recognised as a subsidy while the accrual of the Social security expense continues taking place.

✔ In ERTEs due to force majeur, the Social security contribution to be done by the company was reduced by 75% and could even reach 100% in companies with less than 50 employees registered with the Social security.

✔ Such relief, which is conditioned to keeping the employees, does not have any effects for the employee, who keeps the period of relief as contributed to the Social security, as if the company had paid it itself.

✔ For this reason, the ICAC understands that the accounting event continues taking place as the obligation to contribute to the Social security subsists.

✔ Based on the economic principles of recognizing transactions for accounting purposes based on their economic basis and not on their legal form as well as on their accrual and not on when they are paid, the ICAC concludes that:

• the economic ground of the payment relief for a company is that of a subsidy which, unless the requirements to obtain it are not complied, does not need to be reimbursed.
• Such subsidy must be recognized accounting and tax wise as income for the company, while the Social security expense continues taking place.

✔ Only in the event that the relief is not significant based on materiality grounds, it will reduce the amount of the Social security quotes payable by the employer.