Current and capital subsidies: distinction
Public aid gives rise to different tax treatment depending on the classification that should be granted to it: Current and capital grants.
Capital grants
Capital grants are those whose primary purpose is to promote the installation or start-up of the activity, as well as the realization of investments in fixed assets (buildings, machinery, installations, etc.), or multi-year projection expenses and are charged as income to the same extent as the investments or expenses incurred against them are amortized.
Therefore, the subsidy will have the character of a capital subsidy provided that its purpose is to finance the fixed assets or capital of the entrepreneur or professional. However, if its purpose is to guarantee, at the start of the activity, a minimum income or to offset expenses for the year, it must be treated as a current subsidy.
Capital grants will be recorded as income for the year in proportion to the depreciation provision made in that period for the aforementioned items or, where applicable, when their disposal, impairment correction or removal from the balance sheet occurs, even if the taxpayer has previously opted for the criterion of temporary allocation of collections and payments or the cash criterion, given its specialty and the reference that the Personal Income Tax Law makes to the specific regulations of the Corporate Tax and this, in turn, to the accounting result. Supreme Court judgments No. 392/2022, of March 29, and 398/2022, of March 30, issued, respectively, in cassation appeals No. 3679/2020 (ROJ: STS 1456/2022) and 8193/2020 (RED: STS 1285/2022).
However, in those cases where the assets are not susceptible to amortization, the subsidy will be applied as full income for the year in which the sale or write-off in inventory of the asset financed with said subsidy occurs, applying the 30% reduction typical of returns obtained in a notoriously irregular manner over time .
Current grants
Current subsidies are those that are normally granted to guarantee a minimum profitability or compensate for losses caused by the activity and are computed in their entirety as additional income in the period in which they are accrued. That is, when the granting of the subsidy is firmly recognised and quantified, regardless of when it is received.
Notwithstanding the foregoing, if the taxpayer has opted for the collection and payment criterion, in accordance with the terms set forth in article 7.2 of the Personal Income Tax Regulations , which establishes the option of using the collection and payment criterion to temporarily allocate income and expenses derived from economic activity profits, the subsidy must be allocated in the tax period in which the corresponding collection thereof occurs.
Note: Please note that the following grants awarded during 2022 are taxed as current grants, with the aim of offsetting the increase in costs incurred as a result of the invasion of Ukraine and the sanctions imposed on Russia because of it:
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Direct aid to the road transport sector provided for in articles 25 of Royal Decree-Law 6/2022, of March 29 ( BOE of March 30) and 4 of Royal Decree-Law 14/2022, of August 1 ( BOE of August 2).
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Direct aid to the gas-intensive industry sector provided for in article 20 of Royal Decree-Law 11/2022, of June 25 ( BOE June 26).
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Direct aid to the agricultural sector provided for in article 33 of Royal Decree-Law 6/2022, of March 29 ( BOE of March 30) and developed in Royal Decree 428/2022, of June 7 ( BOE June 8).