Companies must defer the deductibility of life annuities to former directors

The legal and economic nature of payments made to former members of the administration has raised doubts regarding the moment when companies can apply their deductibility in Corporate Income Tax (IS). The Directorate General of Taxes (DGT) has addressed this issue to delimit the tax treatment of life annuities.

What the DGT has resolved

The advisory body establishes that the deductibility of a life annuity to a former director is conditioned by the nature of the obligation assumed by the entity. If the benefit is classified as a pension commitment or as the coverage of an analogous contingency, the tax treatment must comply with the provisions of Article 14.1 of the Corporate Income Tax Law (LIS).

Under this assumption, expenses are not deductible in the period in which the accounting provision is made; instead, deductibility is deferred to the period in which the benefits are effectively paid. The Administration emphasizes that the assessment of the economic reality of the expense, its accounting treatment, and the legal relationship between the company and the director is a matter for verification during the inspection phase.

What it means for you

For companies that maintain or have agreed upon this type of remuneration, the main impact lies in the tax calendar. If the benefit has the character of a pension commitment, the company will not be able to reduce its taxable base at the moment it recognizes the debt or the provision, but must instead wait for the cash flow of the periodic payments.

This criterion implies that an incorrect classification of the expense can lead to a temporary difference between the accounting result and the tax result, affecting the management of the company's tax burden.

What should be done

Given the existence of these agreements, it is necessary to perform a technical analysis to determine the real nature of the obligation. It must be evaluated whether the payment corresponds to remuneration for past services or if it fits the definition of a pension commitment. It is fundamental to ensure that the accounting treatment is consistent with the economic reality of the benefit to avoid contingencies in an eventual verification phase by the Administration.