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V0762-15 9 March 2015 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · deterioro de créditos

Bad debts with related parties are only deductible if the debtor is in insolvency liquidation

A company inquired whether it could claim a tax deduction for trade receivables that its Colombian subsidiary was unable to pay. The DGT ruled that, as the entities are related parties, the deduction is only permissible if the debtor is in insolvency proceedings and has entered the judicial liquidation phase.

The question raised

Given that the trade receivables that the consulting entity maintains with the Colombian entity are uncollectible, whether they would be tax-deductible in Corporate Income Tax and, if so, from what moment.

The DGT's ruling

For the impairment of receivables with related entities to be deductible, it must be met that the debtor is in insolvency proceedings and the opening of the liquidation phase has been ordered by the judge. If foreign regulations do not provide for a liquidation phase comparable to the Spanish one, the impairment shall not be deductible until the receivable is written off accounting-wise as uncollectible.

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