Deduction of the license fee in the ICIO: the key lies in the municipal ordinance

The application of the deduction for the amount of the license fee in the Tax on Constructions, Installations, and Works (ICIO) has raised doubts regarding its calculation base. The Dirección General de Tributos (DGT) has issued a ruling that clarifies the scope of municipal regulations in this matter.

What the DGT has resolved

The query concerned whether the deduction provided for in Article 103.3 of the Revised Text of the Law Regulating Local Treasuries (TRLRHL) should be applied to the gross tax liability or to the discounted tax liability. The DGT has determined that the tax ordinance is the rule responsible for establishing this criterion.

According to the body, the tax ordinance has the competence to define whether the deduction is applied to the gross tax liability or the discounted tax liability. Furthermore, local regulations may regulate other substantive and formal aspects of this deduction. Consequently, the taxpayer must apply the fee amount strictly according to what the corresponding tax ordinance dictates.

What it means for you

This ruling has a direct impact on both construction companies and individuals performing works subject to a license. The final amount that can be deducted is not uniform throughout the national territory, as it depends on the specific regulation of each city council.

• Companies: Companies executing constructions or works must verify the tax ordinance of each municipality where they operate to determine the real impact of the deduction on their tax burden.
• Individuals: Those performing works must consult municipal regulations to know whether the deduction applies to the gross or the discounted tax liability, which will alter the tax benefit obtained.

What should be done

When performing any activity subject to ICIO, it is necessary to analyze the tax ordinance of the corresponding municipality. Since local regulations can vary significantly in substantive aspects, it is fundamental to verify the calculation base of the deduction before submitting the tax settlement. It is recommended to assess each particular situation in accordance with the current local regulation.