Companies must accrue income if collection does not exceed one year

The management of income in Corporate Tax (IS) requires a precise distinction between the moment the right to collect is generated and the moment the funds are received. Recently, the Dirección General de Tributos (DGT) has specified the scope of the rule for recognizing income in installments, a critical aspect for companies operating with fragmented collection structures.

What the DGT has ruled

The inquiry focused on determining whether services provided as a Digitalizing Agent could benefit from Article 11.4 of the Corporate Tax Law (LIS) based solely on the fact that the collection of the final phase occurred more than twelve months after the accrual of the operation.

The DGT's criterion is restrictive: for a company to apply the recognition of income in installments, the period elapsed between the accrual of the operation and the maturity of the last installment must be greater than one year. If this interval does not exceed twelve months, the company is obliged to apply the accrual principle, recognizing the entirety of the income in the tax period in which the accrual of the operation occurred, regardless of when the actual collection of each phase takes place.

What it means for you

This criterion directly impacts companies providing services linked to programs such as the Digital Kit. If your service collection structure is designed so that the interval between the start of the service (accrual) and the maturity of the last payment is equal to or less than one year, you will not be able to defer the taxation of that income.

The mere circumstance that an individual collection occurs after twelve months from accrual is not sufficient to trigger the benefit of installment recognition. The key lies in the total duration of the collection cycle from the initial accrual.

What should be done

It is necessary to analyze the timing of contracts and the billing schedules of the services provided. Companies must verify whether the interval between the accrual of the operation and the maturity of the last collection installment actually exceeds one year to determine whether they must tax the total amount in the year of accrual or whether they can apply the installment recognition rule in accordance with current regulations.