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V1043-15 6 April 2015 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · expropiación forzosa

Revenue from expropriation arises when risks and benefits are transferred; delay interests are not subject to VAT

A company asks about the corporate tax treatment of an expropriation, the deductibility of a provision for IVTNU, and the VAT treatment of the transaction and delay interests. The DGT clarifies when revenue arises and states that delay interests have an indemnity function and are not part of the VAT taxable base.

The question raised

Question raised: Taxation of the transaction in Corporate Income Tax and the deductibility of the provision that the consulting entity would establish regarding the Tax on the Increase in the Value of Urban Land, which the consulting entity must satisfy at the time the deed of transfer of property is formalized

The DGT's ruling

In Corporate Income Tax, income from expropriation is recognized when risks and benefits are transferred, and the cash basis may be applied if more than one year elapses between delivery and payment. The tax provision is deductible if it meets the accounting and legal requirements for deductibility. Regarding VAT, transfers of land intended for public parks or gardens are exempt. Late payment interest arising from the expropriation does not form part of the VAT taxable base due to its compensatory nature.

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