Tax authorities view on tax compensation in Spanish Corporate Income tax

Spanish Corporate income taxpayers are entitled to offset pending tax losses carried forward with the positive income obtained in the fiscal year and TEAC (Central Economic Court) has resolved again on the criterion that the right to offset tax losses has to be considered as an “option”, as it is a facultative right.Spanish Corporate income taxpayers are entitled to offset pending tax losses carried forward with the positive income obtained in the fiscal year.

It is important to know, at the time of filing your company’s Corporate income tax return within the Spanish legal term to do so, whether tax losses will be offset, as the TEAC (Central Economic Court) has resolved again on the criterion that the right to offset tax losses has to be considered as an “option”, as it is a facultative right.

Failure to compensate pending tax losses or filing a Corporate income tax return out of term can imply that the Spanish Tax Agency (AEAT) does not allow your company to offset such pending tax losses in a relevant fiscal year after the voluntary term to file the tax return. Therefore, it is of major importance that your tax return is well prepared and in due term.

✔ The right to offset tax losses can be exercised with no time limit although the amount is subject to the general limit of 70% of the taxable result, prior to the application of the capitalization reserve. It is also subject to peculiarities as regards newly created entities as well as big sized companies. In any case, taxpayers are always entitled to compensate a minimum of 1 million €.

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✔ Besides, the consideration of the tax losses compensation as an “option”, implies, according to the Spanish General Tax law that “the options that, according to the tax regulations, must be exercised, applied for or renounced to with the presentation of a tax return, can not be rectified subsequently, except if the correction is done within the legal term to file the tax return”.

Accordingly and following the TEAC criterion, your company may be involved in one of the following situations:

If it files a tax return offsetting the tax losses carried forward up to the maximum compensable limit, and the positive taxable base increases once the filing term has expired, voluntarily or due to a tax audit, your company will be entitled to continue offsetting the maximum permitted for the newly increased taxable result, against pending tax losses at such moment.
If, on the contrary, it filed a tax return compensating an amount lower than the one legally permitted or simply you did not offset any amount, because perhaps you forgot it, you cannot change your mind and offset a bigger amount (if, for example, you may need it due to a tax audit process) because your company already exercised its option at the time of filing it first tax return.
Based on the same argument, if you did not file the Corporate income tax return within the legal mandatory term but filed an out of term tax return, you cannot compensate pending tax losses at that time as the TEAC understands that it would otherwise imply rectifying an option already exercised, and allowing it would imply a better tax treatment for a taxpayer not filing its tax return than for the compliant one, based on the previous criteria.

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It is difficult to understand, though, how can an option be exercised, when no tax filing has even been done. It appears to us that the TEAC is thinking of specially penalizing such a practice, a criterion that shall be binding and followed by the Spanish Tax Agency.

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Publicado el 03-2018 por PBS