Tax timing (imputación temporal) is the rule that determines in which tax period income or expenditure must be included in the taxpayer's taxable base. Under IRPF, Article 14 of Law 35/2006 establishes the accrual principle for employment and business income and the due-date principle for capital income. Under Corporate Income Tax, Article 11 LIS adopts the accounting accrual standard with tax-specific corrections for instalment transactions, deferred costs and other timing differences.
In practice
What Is Tax Timing in Spain
Tax timing answers the question: in which tax year is a particular item of income taxable or a particular cost deductible? In an annual tax system, timing rules are fundamental for determining the liability for each period, calculating limitation periods and optimising the use of tax losses.
Tax Timing Under IRPF (Art. 14 LIRPF)
Article 14 of Law 35/2006 (LIRPF) provides the following general timing rules:
- Employment and business income: accrual basis — included in the period in which it is earned and due, regardless of when it is actually received.
- Capital income: due-date basis — included when the income becomes due and payable to the taxpayer.
- Capital gains and losses: included in the period in which the asset transfer or patrimony change takes place.
Special Rule: Income Pending Court Resolution
Where the amount of income is not final because it depends on a court ruling (e.g. wrongful dismissal compensation, disputed inheritance), it is included in the period when the judgment becomes final.
Irregular Income
Income with a generation period of more than two years that is received in a single payment qualifies for a 30 per cent reduction on the taxable amount.
Tax Timing Under Corporate Income Tax (Art. 11 LIS)
Article 11 of Law 27/2014 (LIS) adopts the accounting accrual principle as the general rule: income and expenses are recognised in the accounting period in which they accrue, regardless of when cash is received or paid.
Special Timing Rules Under the CIT
- Instalment transactions: long-term instalment contracts may recognise income in proportion to the instalments collected in each period, rather than in the year of transfer.
- Temporary differences: differences between accounting and tax treatment (accelerated depreciation, impairments not deductible until realised) create temporary differences that reverse in future periods.
- Deferred income and prepaid costs: the tax rules restrict the deductibility of certain costs before they accrue under accounting standards, preventing artificial acceleration of deductions.
Tax Planning Implications
Correctly managing timing rules allows income to be deferred or costs to be accelerated within the limits of the law, particularly relevant when tax losses are available for offset or when marginal rates differ across periods. This analysis should form part of any material transaction or year-end planning exercise.