At the end of this fateful year 2020, Spanish companies are now facing the end of the year. They prepare their annual accounts and calculate their Corporation Tax (IS). This year-end will be complicated by the exceptional circumstances caused by the pandemic, let’s look at some critical points.
As for depreciation, during the confinement, many companies had to close and currently some of them have been opening, closing, reopening and closing again according to the evolution of the restrictive measures, in favor of to prevent the spread of the coronavirus. What will happen to the depreciation of assets during the periods when the companies were closed? Will they be considered a deductible expense when there has been no use or wear and tear? Will they be deductible in periods when the company has not generated revenue? Will we have to adjust the amortization of assets during the periods of business closure?
On deductible expenses, due to the famous clear correlation between expenditure and income, when the company does not generate income the expenses are not deductible, which the AEAT is very clear in the case of inactive companies to which it denies them. systematically deductible expenses, no matter how small. So what will happen to these expenses that have been incurred despite being in a situation of closure? Will they be deductible in IS? Will we have to adjust them as a permanent difference? What criteria will be applied in relation to the accrued expenses for closures by Covid? Non-deductible expenses and penalty for failure to do so? Adding to the above the expenses that are generated to breach ERTO bonuses for subsequent dismissals (the famous non-deductible expenses for ‘actions contrary to the legal system’ of Article 15 of the IS Law).
Another aspect to consider is the patrimony that has occurred. Many companies have kept the shutter down for months, and some remain fully or partially closed, especially those linked to tourism. In this case, we will have to decide whether the company’s assets are still affected by an economic activity (which does not exist due to the closure) or whether they will be treated as assets not affected by the activity. If this happens, we would enter the so-called ‘surviving assets’ which occurs when more than 50% of the assets of an entity is not affected by an economic activity. The definition of an estate company changes according to the tax in question. The IS according to quarterly balance sheets.
Wealth tax based on compliance for 90 days in the fiscal year of the patrimonial conditions. Today there are still companies that keep closed production centers, shops, restaurants or hotels due to lack of demand that makes them viable. ‘Surplus capital’ causes loss of tax incentives in SI (15% tax rate, ERD incentives, dividend exemption, and offsetting of negative taxable bases to name a few).
It would also be excluded from being considered a family business and, therefore, its partners would have to pay tax on the value of the same in the Wealth Tax or, in case of transmission via inheritance or donation, lose the reduction of the ‘95% of Inheritance Tax.
And the decision must be made before the next months of June and July in which we will present the declaration of the IS, IRPF (the self-employed) and the Wealth Tax. By contrast, the AEAT will have 4 years to inspect us and verify that we have done everything correctly.
David Jiménez, Raúl Marset and Albert Sagués, partners of RSM Spain