Companies may offset real estate losses against profits from a new commercial activity

The management of accumulated losses is a determining factor in the tax planning of any company. A recent binding ruling from the Dirección General de Tributos (DGT) has clarified the scope of offsetting negative tax bases when an entity decides to diversify its business model.

What the DGT has ruled

The inquiry asked whether a company carrying forward negative tax bases, derived mainly from its real estate activity, could offset them against profits generated by a future commercial activity (in this case, jewelry and costume jewelry). The DGT has ruled that such offsetting is possible within Corporate Tax (Impuesto sobre Sociedades).

The criterion establishes that negative tax bases can be offset against positive income from subsequent periods. To do this, the legal limit of 70% of the tax base must be respected (excluding the first million euros of the base). By expanding the entity's corporate purpose without the limitation circumstances provided for in Article 26.4 of the Corporate Tax Law (Ley del Impuesto sobre Sociedades, LIS), the company maintains its right to offsetting under the established legal terms.

What this means for you

This criterion has direct relevance for companies that report losses in a specific sector, such as real estate, and project entering different activities that prove to be profitable. The resolution confirms that diversifying activity does not act as an obstacle to utilizing previous negative balances.

In operational terms, this allows the profits generated by the new commercial business to serve to reduce the tax base for the fiscal year, optimizing the entity's cash flow by decreasing the tax payable through the use of balances from previous years.

What should be done

In the event of a possible business expansion or change in commercial strategy, it is necessary to:

• Verify the corporate purpose: Ensure that the new activity is correctly reflected in the company's bylaws.
• Control offsetting limits: Monitor that the offset complies with the 70% limit of the tax base to avoid errors in the tax settlement.
• Analyze applicable regulations: Evaluate whether the company structure complies with the requirements of the LIS to avoid offsetting limitations.
• Assess each situation: Since the application of this criterion depends on the absence of the limitations in Article 26.4 of the LIS, it is fundamental to analyze the composition of the tax base in each specific case.