What provisions for debts and risks can we deduct in Corporation Tax?

Possibility and timing of the deduction

Provisions are used to reflect a series of losses or expenses that the company anticipates in the future, even if their exact amount or timing is unknown. They may be determined by law, a contract, or an implicit or tacit obligation, and their recognition results in an accounting expense.

At the tax level, however, not all provisions for expenses and risks will be deductible in Corporate Income Tax in the year in which they have been provided (LIS art.14; LIS/04 art.13) and, therefore, in these cases, they will cause differences that must be adjusted in the settlement of the Tax until the obligation is effectively met.

In general terms they are considered to be:

Conditions that these provisions must meet to be deductible:

a) For repair and inspection / e) For coverage of expenses for sales returns: the law specifies a formula to calculate what maximum percentage is considered deductible taking into account the experience of the tax period and the two previous ones.

b) For taxes: they must have been accrued and be deductible taxes.

c) Environmental actions: they must respond to a plan approved by the Administration.

d) By responsibilities:

– Litigation: if the amount is justifiable

– Compensation: if one accepts responsibility

– Outstanding and justified payments for certain events but yet to be quantified.

– Outstanding remuneration to staff (e.g., bonuses and accrued vacation pay).

f) Pension plans: contributions made by the promoter provided they are attributed to the participant or insured in the same financial year.

In corporate taxation, a thorough understanding of the subject makes all the difference. We invite you to consult us about your specific circumstances via email at ambit@ambitassessor.com or at our offices.

We are experts in national and international taxation and would be happy to help you.

Marc Ivars,
Tax Area

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