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V0767-14 19 March 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · derivación de responsabilidad

Impairment of credit rights due to insolvency of a related party is non-deductible, unless insolvency is judicially declared

A company paid the VAT debts of another entity due to derivative liability and sought clarification on whether the impairment of its credit right was tax-deductible. The DGT ruled that, because the entities are related, the loss is only deductible if the insolvency is judicially declared.

The question raised

Whether the recorded expense is tax deductible due to the insolvency declared in the liability derivation agreement regarding company Y, or whether the consulting entity must initiate legal actions so that the insolvency is judicially declared.

The DGT's ruling

The person liable for payment who satisfies the debt acquires a right of credit against the principal debtor. If there is a relationship between the liable party and the debtor, the impairment loss on said credit shall not be tax deductible, unless the insolvency is judicially declared. The late payment interest paid is not deductible by law. If the principal debtor is a related entity, the requirement of judicial insolvency must be met for deductibility.

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