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V0805-16 29 February 2016 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · deterioro de existencias

Deductibility of inventory impairment depends on the application of accounting valuation criteria

The taxpayer inquired whether a proprietary method for calculating inventory impairment provisions, based on a turnover ratio, is tax-deductible. The Directorate General of Taxes (DGT) ruled that the expense is deductible if recorded in accordance with the General Accounting Plan, but did not issue a ruling on the specific method proposed by the company.

The question raised

Whether the provision for impairment of inventories calculated by the company according to the described method is deductible for the purposes of determining the taxable base of Corporate Income Tax.

The DGT's ruling

The expense for impairment of inventories is tax deductible provided that it is recorded accounting-wise in accordance with the General Accounting Plan and the Resolution of September 18, 2013. To this end, it must comply with accounting recognition, accrual, and documentary justification. However, the DGT does not validate the calculation system based on ratios of units sold proposed by the company, as it cannot ensure that it guarantees the net realizable value is lower than the acquisition price.

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