Tax-deductible provisions

1. Normal Mode

   The following expenses, among others, will not be deductible under the concept of provisions (art. 14 of the LIS)

   • Expenses for provisions and internal funds for the coverage of contingencies identical or similar to those covered by the consolidated text of the Law on the Regulation of Pension Plans and Funds.

     These expenses will be tax deductible in the tax period in which the benefits are paid.

   • Expenses relating to long-term staff remuneration through defined contribution or defined benefit systems.

     However, contributions from promoters of pension plans regulated in the consolidated text of the Law on Regulation of Pension Plans and Funds, as well as those made to corporate social security plans, will be deductible. Contributions to cover contingencies similar to those of pension plans will also be deductible.

   • Expenses arising from implicit or tacit obligations

   • Those concerning the costs of fulfilling contracts that exceed the economic benefits expected to be received from them.

   • Derivatives of restructuring, except if they refer to legal or contractual obligations and not merely tacit ones.

   • Those relating to the risk of sales returns.

   • Those of personnel that correspond to payments based on equity instruments, used as a formula for employee remuneration, and are paid in cash.

   The following will be deductible, among others (art.14 LIS)

   • Expenses corresponding to environmental actions when they correspond to a plan formulated by the taxpayer and accepted by the tax authorities.

   • The expenses inherent in the risks derived from guarantees for repairs and revision will be deductible up to the amount necessary to establish a provision not greater than the result of applying to sales with guarantees in force at the conclusion of the tax period a percentage determined by the cost of covering such guarantees in the tax period concerned and in the two previous periods as a proportion of sales backed by guarantees in these tax periods.

     This same rule will apply to provisions for covering incidental expenses due to sales returns.

   • Newly created entities may also deduct the provisions mentioned above for risks arising from repair and overhaul guarantees, by setting the percentage referred to therein, with respect to expenses and sales made in the tax periods that have elapsed.

2. Simplified Modality

   The set of deductible provisions and expenses that are difficult to justify will be quantified exclusively by applying the percentage of 5% on the positive net income, excluding this concept, without the resulting amount being able to exceed 2,000 euros per year.

   The 5% rate is applied on a per-activity basis, but the maximum amount that the taxpayer can deduct from all of his or her activities under this concept cannot exceed 2,000 euros.

   In the case of activities carried out through entities under an income attribution regime, the deduction for deductible provisions and expenses that are difficult to justify will be applied individually by each taxpayer or partner, heir, co-owner or participant on the net income from the economic activity that corresponds to them based on their percentage of participation in the entity, applying the limit of 2,000 euros on said amount.

   The 5% rate for deductible provisions and expenses that are difficult to justify is incompatible with the application of the reduction provided for holders of economic activities carried out for a single client.