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V3279-14 5 December 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · abono a reservas

Credit to reserves for correction of non-deductible expense errors should not be included in the tax base

A company inquired whether a credit to reserves made to accountingly correct the payment of royalties from previous years (which were not tax-deductible) should be taxed as a positive adjustment. The DGT responds that, as it involves the cancellation of expenses that were never tax-deductible, said credit should not be included in the tax base.

The question raised

Question posed: Whether, upon making the credit to reserves as a consequence of the recording of the aforementioned accounting modification, for the amount of the royalties paid by the inquiring entity to L during the years 1997 to 2005, any positive extra-accounting adjustment must be made to the tax base of the Corporate Income Tax.

The DGT's ruling

The tax base is determined by applying extra-accounting adjustments to the accounting result. If a credit to reserves is made to accountingly correct expenses from previous financial years that were not tax-deductible, said credit must not be included in the tax base. This is because the credit corresponds to the cancellation of expenses that the Administration had already disallowed for tax purposes.

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