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A company inquired whether a redundancy payment for an employee is deductible in 2024 or 2025 following a settlement agreement. The DGT ruled that the expense is deductible in the period in which it is accounting-accrued (2024) through the use of a provision.
Question posed: In which tax period is the expense derived from severance pay tax-deductible? In 2024 or in 2025?
The expense derived from the accounting of a provision to cover severance payments is deductible in the tax period of its accrual (fiscal year 2024), regardless of when the payment is made. To this end, the provision must comply with the recording and valuation criteria of the Commercial Code and the General Accounting Plan. Nevertheless, the deductibility limitation of Article 15.i) of the Corporate Income Tax Law regarding expenses for the termination of employment relationships must be observed.
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