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Practical manual for Income Tax 2023.

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 rulings No. 392/2022, of March 29, and 398/2022, of March 30, respectively, in the appeals for cassation 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 had opted for the criteria of collections and payments, in the terms provided in article 7.2 of the Regulations of the PIT, which establishes the option of using the collection and payment criterion to temporarily allocate income and expenses derived from income from economic activities, the subsidy must be allocated in the tax period in which the corresponding collection occurs.

Note: Please note that the following grants awarded during 2023 are taxed as current subsidies, in order to mitigate the impact of the war in Ukraine on the rise in fuel prices:

  • Direct aid extraordinary and temporary for road transport companies that are entitled to a partial refund of the Hydrocarbon Tax on diesel for professional use under article 52 bis of Law 38/1992, of December 28, on Special Taxes, provided for in articles 34 et seq. of Royal Decree-Law 20/2022, of December 27, on measures in response to the economic and social consequences of the War in Ukraine and in support of the reconstruction of the island of La Palma and other situations of vulnerability ( BOE of December 28).

  • Direct aid extraordinary and temporary to cover the price of certain energy products for road transport companies that do not benefit from the partial refund of the Hydrocarbon Tax on diesel for professional use, of article 52 bis of Law 38/1992, of December 28, on Special Taxes, provided for in articles 38 and following of Royal Decree-Law 20/2022, of December 27, on measures to respond to the economic and social consequences of the War in Ukraine and to support the reconstruction of the island of La Palma and other situations of vulnerability ( BOE of December 28).

  • Aid granted, in compliance with the mandate established in article 59 of Royal Decree-Law 20/2022, of December 27 ( BOE of December 27), in order to compensate for the additional costs due to the exceptional increase in natural gas prices during 2022 for industrial consumers or sectors intensive in natural gas consumption, by Order ICT /744/2023, of July 7, which regulates the bases of the line of aid to compensate for additional costs due to the exceptional increase in natural gas prices.

  • Extraordinary and temporary direct aid to cover the price of diesel consumed by farmers and ranchers who are entitled to a partial refund of the Hydrocarbon Tax on diesel for professional use in article 52 ter of Law 38/1992, of December 28, on Special Taxes or the Special Tax of the Autonomous Community of the Canary Islands on Petroleum Derived Fuels, provided for in articles 24 et seq. of Royal Decree-Law 20/2022, of December 27, on measures in response to the economic and social consequences of the War in Ukraine and in support of the reconstruction of the island of La Palma and other situations of vulnerability ( BOE of December 28).

    • Direct aid to the agricultural sector granted in compensation for the increase in costs caused by the rise in the price of fertilizers, derived from the situation created by the invasion of Ukraine provided for in article 30 of Royal Decree-Law 20/2022, of December 27 ( BOE of December 27), developed in Order APA / 122/2023, of February 8 ( BOE of February 13), which specifies certain requirements and conditions.