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V2218-14 8 August 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · imputación temporal

Construction and project costs not deductible in corporate tax

A company asked whether development costs of engineering projects transferred via share sales could be deducted. The DGT states that incorporation costs must be capitalized and costs of projects owned by other entities are not deductible due to being deemed liberalities.

The question raised

Can all expenses generated in the development of an engineering project that is subsequently alienated be deducted, when the project and the developed structure are held in the form of shares of a company incorporated for such purpose?

The DGT's ruling

Company formation expenses must be incorporated as an increase in the value of the holdings. Payments for the development of projects owned by other companies are not considered expenses for the purpose of generating income, but are instead classified as gifts or gratuitous transfers pursuant to Article 14 of the Corporate Income Tax Law. For an expense to be deductible, it must be related to income, be actual, be recorded in the accounts, and be justifiable.

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