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V1491-14 6 June 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · devengo

Tax treatment of works in rented buildings depends on accounting classification

A taxpayer has inquired whether payments for works in rented buildings can be deducted as an expense in the period they are paid. The DGT has ruled that the tax treatment follows accounting standards, depending on whether the works are classified as repairs, renovations, extensions, or improvements.

The question raised

Whether the payments made by the consulting entity for works on leased buildings can be considered lower income or an expense for the fiscal year in which such payments are effectively made.

The DGT's ruling

Accounting expenses shall be tax-deductible provided they comply with accounting registration, accrual, the matching principle of income and expenses, and documentary justification. If the works are classified accounting-wise as repair or maintenance, they are charged to the profit and loss account. If they are considered renovation, expansion, or improvement that increases capacity or useful life, they must be capitalized as an increase in the value of fixed assets.

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