Spanish General Directorate of Taxes clarifies the criteria for determining operating profit for corporate income tax purposes
Published on 23rd Oct 2024
Income, expenses or revenue not included permanently in the corporate income tax base should be excluded from the operating profit
The Spanish General Directorate of Taxes (GDT) has published a binding ruling (V1845-24) that addresses how to determine of operating profit in corporate income tax (CIT). In accordance with the recent amendment to article 16.1 of the CIT Act, this has been introduced to adapt Spanish regulations to Directive (EU) 2016/1164 establishing rules against tax avoidance practices.
In the consultation, an entity engaged in construction and services activities is affected by the new wording of article 16.1, which states that "under no circumstances shall income, expenses, or revenue that have not been included in the corporate income tax base be part of the operating profit."
The new provision has generated doubts about how income and expenses should be treated for the purposes of determining operating profit.
Permanent adjustments
Expenses or income that are part of the operating result but give rise to a permanent adjustment in the taxable base must be removed from the operating result to determine the operating profit. This is because such income or expenses will not be definitively integrated into the CIT base.
Temporary adjustments
Income or expenses that are part of the operating profit and are subject to a temporary off-balance-sheet adjustment (for example, impairments) should be considered when calculating the operating profit provided for in article 16.1. They should not be excluded from the calculation of the operating profit for the period, as they are expenses or income that are not definitively excluded from the taxable base of the CIT.
Income or expenses outside operating profit
Expenses or income that are not part of the operating profit are not affected by the recent GDT ruling, regardless of whether the adjustment is permanent or temporary. For example, this would be the case for amortisations.
Exempt dividends
Dividends received from another company that are exempt by meeting the requirements of article 21 of the CIT Act, to the extent that the net income (income reduced by the corresponding management expenses) derived from the dividends received enjoys full exemption, their amount must be excluded from the calculation of the operating profit for the period.
Osborne Clarke comment
In conclusion, we consider that this Spanish GDT ruling provides clarity on a regulation that has generated various interpretative doubts regarding the correct integration into the CIT base and the impact of permanent adjustments on the determination of operating profit.
The publication of the binding ruling within the period for submitting the October CIT instalment payment implies that its criteria must be taken into account for its determination, despite the fact that the instructions published by the Spanish Tax Authorities and the annex to forms 202 and 222 have not adapted the boxes to the aforementioned interpretation change.
A different issue, which will need to be analysed and assessed, is the impact that this interpretative criterion of the Spanish GDT may have on the calculation of the operating profit concerning the instalment payment made in April 2024.
