Let’s take into account the situation of a company in Spain that is selling and distributing products to professionals providing a guarantee to end consumers.
Are the corresponding accountancy provisions deductible for the company’s taxes in Spain?
On a daily basis, the accountants of our law firm in Marbella are approached with Spanish accountancy and tax inquiries. On this occasion, we will discuss apecific type of costs and expenses that are deductible for Spanish companies’ tax purposes. Are the provisions of risk deductible for Spanish bookkeeping?
- – Accounting in Spain:
The General Accountancy Plan, approved by the Spanish Royal Decree 1514/2007 of November 16th, in its second part under the rules of registration and valuation 15th, Provisions and Contingencies, establishes that a Spanish company will recognise as provisions those liabilities that are indeterminate with respect to their amount or the date on which they will be cancelled, in compliance with the definition and the criteria for recording or accounting recognition contained in the Conceptual Framework of Accounting.
Provisions may be determined by a statutory, contractual or implicit or implied obligation. In the latter case, its birth is placed with the valid expectation created by the company against third parties, assuming an obligation on the part of the company.
Provisions are based on the principle of prudence valuation and only profits obtained up to the closing date of the year will be accounted for, while risks arising from the year or from the previous year will be accounted for as soon as they are known, even if only between the closing date of the annual accounts and the date on which they are formulated.
- – Tax in Spain:
In view of this concept of provision from the perspective of accounting regulations, company tax regulations in Spain establish a more restrictive nature, given that an accrued provision may not be a tax deductible expense. Thus, as long as a provision is not accounted for, it can never be a deductible from a tax point of view.
It is the Spanish Company Tax Rules themselves that limit the tax deductibility of provisions, a limit that appears in Article 13 of the aforementioned consolidated text. The wording of the article given by Spanish Law 16/2007 implies the non-deductibility of expenses derived from implicit or tacit obligations.
That is to say, deductibility requires that the incurred expenditure refers to legal or contractual obligations, as opposed to the accounting regulations that allow the birth of a provision by legal, contractual obligation or by an implicit or tacit obligation, the latter case being the valid expectation created by the company against third parties, assuming an obligation on the part of the company.
Spanish Company Tax Rules are, therefore, more restrictive because the expenses derived from tacit obligations, that is, those assumed by the company either because they have been made public or because they have been reported to third parties, are not deductible expenses for the company.
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