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V0293-16 26 January 2016 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · ejecución hipotecaria

Impairment of credit against a related party is deductible if insolvency is judicially declared

A company enquired whether it could deduct from Corporate Tax the amount paid to a bank following the foreclosure of a property that secured the debt of a related company in liquidation. The DGT ruled that the deductibility of the impairment of said credit depends on the insolvency of the related entity being judicially declared.

The question raised

Whether the amount paid by the consulting entity to the credit institution through judicial mortgage foreclosure, due to the impossibility of collecting the credit from Y, a company in liquidation, is deductible in Corporate Income Tax for the fiscal year in which the guarantees on the real estate assets are executed.

The DGT's ruling

As there is no specific regulation for mortgage foreclosures, the accounting treatment is applied according to Articles 10.3 and 19 of the TRLIS. The foreclosure implies the derecognition of the real estate asset and the recognition of a result based on the difference between its fair value and its book value. Regarding the right of collection against the related entity, the impairment shall be tax-deductible only if the insolvency of said entity is judicially declared, in accordance with Article 12.2 of the TRLIS.

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