The amount of the revaluation of real estate carried out without a legal or regulatory requirement, and contrary to the provisions of the General Accounting Plan, will not be included in the taxable base for Corporation Tax purposes; that is, such revaluation will have no tax implications. No income will need to be declared, and depreciation will continue to be applied to the initial value. Information on the revaluation carried out must be included in the notes to the financial statements
If your company has reduced profits, and you have thought that a good way to strengthen its image is to revalue some assets that have a very low book value, you should take into account the tax consequences of this action and its effects on Corporate Income Tax.
When a company's fixed assets include real estate acquired long ago, whether land or buildings, typically valued at a price significantly lower than their market value, it's common to wonder whether they should be valued at their true worth to better reflect the company's actual net worth. Thus:
- The asset will reflect a value closer to the real value of the goods and rights owned by the company.
- The liabilities side will show a reserve for the amount of the revaluation: equity will gain weight and improve the company's image with banks and creditors.
Accounting standards
In this regard, it is important to note that accounting standards generally do not permit the revaluation of fixed assets, unless required by law or regulation. Specifically, Accounting Standard 2 of the Spanish General Accounting Plan establishes that, after initial recognition, tangible fixed assets are valued at their acquisition cost or production cost less accumulated depreciation and, where applicable, the accumulated amount of impairment losses recognized.
Along the same lines is the resolution of March 1, 2013, of the Institute of Accounting and Auditing of Accounts (ICAC), which establishes rules for the registration and valuation of tangible fixed assets and real estate investments, which only contemplates upward modifications in the subsequent value of fixed assets in the case of renewal, expansion and improvement.
No tax implications
However, in the event of a breach of accounting regulations and a revaluation of tangible fixed assets, whether arbitrary or not, Article 17.1 of Law 27/2014, of November 27, on Corporate Income Tax (LIS), establishes that this voluntary revaluation has no tax effect whatsoever. In other words:
- It is not income. You should not include any income in your Corporate Income Tax return (whether the revaluation is recorded against a reserve account or against income for the year).
- Losses remain. The revaluation will also not affect losses carried forward. In other words, if your company has losses before the revaluation, those losses will still be offset against future profits, regardless of how the revaluation was recorded.
- Depreciation remains the same. And the tax-deductible depreciation will continue to be the same as before the revaluation (that is, you must continue to calculate tax depreciation on the original acquisition value).
Attention. The amount of accounting revaluations will not be included in the taxable base, except when carried out pursuant to legal or regulatory provisions that require their inclusion in the profit and loss account. The amount of the revaluation not included in the taxable base will not result in a higher value, for tax purposes, of the revalued assets.
The income and expenses derived from that element will be determined for tax purposes on the same value they had prior to the revaluation, which implies having to make the corresponding adjustments to the accounting result in order to determine the taxable base of each year in which the accounting income or expenses from the revalued elements are computed.
Please note that the affected assets will continue to have, for tax purposes, their original value: if you sell them in the future, the capital gain must be calculated on the difference between the sale price and the net book value, without taking into account the revaluation.
Mention in the report
Furthermore, in the event of carrying out an accounting revaluation, Article 122 of the LIS establishes the obligation to mention in the notes to the annual accounts the amount of the revaluation, the elements affected and the tax period in which they were carried out.
The aforementioned mention must be made in each and every one of the reports corresponding to the years in which the revalued elements are in the taxpayer's assets; otherwise, non-compliance will constitute a serious tax offense, sanctioned with a proportional monetary fine of 5 percent of the amount of the revaluation, the payment of which will not determine that the aforementioned amount is incorporated, for tax purposes, into the value of the asset subject to the revaluation.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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