The repercussion of the tax reform on impairment and depreciation treatment in Corporate Tax

The changes contained in the Corporate Tax Bill concerning the treatment given to the depreciation and value impairment of fixed assets call for the reflection about the consequences that will derive from their implementation, and possible actions to adopt before they enter in force.

The Bill sets forth changes in the tax treatment given to fixed-assets depreciation and impairment within the framework of the Corporate Tax, which is expected to be applied for tax periods starting from 1 January 2015.

As for depreciations, it is worth highlighting the following changes:

• The approval of anew depreciation schedule, which shall be applied to tangible fixed assets and shall replace the previous one, redefining the depreciation factors of the abovementioned fixed assets. That schedule shall be applied to assets acquired both before and after 1 January 2015. In the first case, the new depreciation factors shall be generally applied to the net tax value attributed to the assets in the first tax period starting from 1 January 2015.
• Intangible fixed assets with a definite useful life shall be amortized taxation-wise depending on its duration (the previous regulation established a ten-year depreciation period).
• The purchase price of intangible fixed assets with an indefinite useful life (including the goodwill) shall be deductible from a tax point of view fora 20-year period, irrespective of their accounting allocation. Nevertheless, for the financial year 2015, the deductibility of intangible fixed assets with an indefinite useful life shall be 2% in general and 1% for the goodwill.
• In relation to the previous point, analyzing the effect that the implementation of new depreciation periods will have on the deductibility of the depreciation of intangible and tangible assets would be convenient, taking into account the removal of the 30% restriction on deductibility applicable in 2013 and 2014.

On the other hand, and with regard to the tax deductibility of impairment losses, the Bill sets forth a new rule concerning the tax deductibility of the impairment of tangible fixed assets, investments in real estate, intangible fixed assets, securities representing capital or equity shareholding in entities and debt securities.

For tax periods starting from 1 January 2015, in the event that the law is finally approved on the same terms than the Bill, value impairments of those items shall not be deductible, whether they are entered in the accounts or not. Losses derived from those items shall only be deductible when transmiteed to third parties (outside the group) or when they are definitely written off from the balance sheet.

Through this amendment, the Bill extends to other equity items the same restriction which was already in force for the financial years starting from 1 January 2013, which only referred to the impairment in other entities’ capital or equity shareholding.

With regard to the latter, in some cases, before the end of the financial year 2014, analyzing the fixed assets that may have been subject to impairment shall be necessary, in order to assess the revealed losses that shall be deductible from a tax point of viewbefore the new Corporate Tax Law enters in force.