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Practical Handbook for Companies 2021

Other non-tax-deductible provisions not affected by article 11.12 LIS

1.Provisions of Articles 14.2, 14.3, 14.4 and 14.5 of the LIS

The article 14.2 of the LIS establishes that expenses relating to long term remuneration to staff through defined contribution or defined benefit systems will not be deductible.

However, will be deductible contributions to cover contingencies similar to those of pension plans and contributions made by sponsoring companies as provided for in Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003, provided that they meet the requirements of article 14.2 of the LIS.

Likewise, article 14.3 of the LIS establishes the non-deductibility of other expenses associated with provisions:

  1. Those deriving from implicit or tacit obligations.

  2. Those concerning any contract fulfillment expenses which exceed the anticipated economic profits.

  3. Those deriving from restructurings, except if they refer to legal or contractual obligations which are not merely tacit.

  4. Those relating to the risk of sales returns.

  5. Personnel expenses which correspond to payments based on equity instruments, used as a formula of remuneration to employees and paid in cash.

Finally, article 14.4 of the LIS establishes the deductibility of expenses corresponding to environmental actions, provided that they correspond to a plan formulated by the taxpayer and accepted by the tax administration.

However, according to the provisions of article 14.5 of the LIS, these non-deductible expenses are not deductible, either because this is established in the regulations.or because they have not complied with the requirements of the regulations, are deductible in the tax period in which the provision is applied or the expense is used for its intended purpose.

A tener en cuenta:

In relation to the non-deductibility of the expenses associated with provisions referred to in article 14.3 of the LIS, the Directorate General of Taxes has ruled that is not deductible in corporate income tax a provision intended to cover the risk derived from a possible future indemnity in the event of dismissal of the employees, since the provision does not respond to a current, legal or contractual obligation, but is intended to cover the risk derived from a possible future indemnity in the event of dismissal of the employees.Therefore, the provision will not be a tax-deductible expense in the tax period in which it is made since, at that time, there is no certain obligation to compensate the workers, but only an expectation.

However, according to Article 14.5 of the LIS, the provision made by the taxpayer will be considered as a tax deductible expense in the tax period in which the provision is used for its intended purpose, and not in the tax period in which it was made for accounting purposes.

Filling in form 200

The difference between the accounting criterion and the tax criterion on the deductibility of the expenses mentioned in this section gives rise to the following adjustments in the boxes [00337] and [00338] "Other provisions not deductible for tax purposes (art. 14 LIS) not affected by art. 11.12 LIS" on page 12 of form 200:

  • In the tax period in which the non-deductible expenses are booked, the taxpayer must include the amount in the box [00337] of increases to the profit and loss account.

  • And in the tax period in which the provision is applied or the expense is used for its intended purpose, the taxpayer must include in the box [00338] of decreases, the amount corresponding to these expenses.

2.Provisions of Article 14.7 of LIS

The article 14.7 of the LIS establishes that the expenses related to the technical provisions made by the insurance companies will be deductible up to the amount of the minimum amounts established by the applicable regulations.Within the same limit, the amount allocated during the year to the equalisation reserve will be deductible in determining the tax base, even if it has not been included in the profit and loss account.Any use of this reserve shall be included in the tax base for the tax period in which it is used.

Filling in form 200

In application of this precept, the amount of the expenses related to the technical provisions made by the insurance entities, as well as the amount of the allocation in the financial year to the equalisation reserve, which exceed the limit of the minimum amounts established by the applicable regulations, should be entered in the box [00337].Also, in the tax period in which the insurance companies apply this reserve, they must enter the amount in box [00338].

If the amount of the allocation for the year to the equalisation reserve has not been included in the profit and loss account, it is deductible up to the limit mentioned above, so the amount of the allocation up to the limit should be entered in box [00338].In the tax period in which this reserve is used, this amount must be entered in box [00337].

Remember:

In the boxes [00335] and [00336] "Expenses and provisions for pensions not affected by art. 11.12 LIS (arts.14.1, 14.6 and 14.8 LIS)", only the amounts relating to such expenses that are not affected by the limit established in article 11.12 of the LIS should be entered.

If they were affected by this limit, their amount would be entered in the boxes [00415] and [00211] "Impairment losses under art. 13.1 LIS and provisions and expenses (arts.14.1 and 14.2 LIS) referred to in art. 11.12 and DT 33ª.1 LIS".

3.Provisions of Article 14.9 of the LIS

The article 14.9 of the LIS establishes that the expenses inherent to the risks derived from guarantees of repair and revision, will be deductible up to the amount necessary to determine a balance of the provision not exceeding the result of applying to the sales with outstanding guarantees at the end of the tax period the percentage determined by the proportion in which the expenses incurred to meet the guarantees incurred in the tax period and in the two previous tax periods would have been found in relation to the sales with guarantees made in those tax periods.

The provisions of the preceding paragraph shall also apply to allocations to cover ancillary expenses for sales returns.

Filling in form 200

Therefore, taxpayers should make a positive adjustment in box [00337] for the amount of those expenses that are not deductible because they exceed the amount established in that provision.

Remember:

In the boxes [00337] and [00338] "Other non-deductible provisions (art. 14 LIS) not affected by art. 11.12 LIS", only the amounts relating to these expenses that are not affected by the limit established in article 11.12 of the LIS should be entered.

If they were affected by this limit, their amount would be entered in the boxes [00415] and [00211] "Impairment losses under art. 13.1 LIS and provisions and expenses (arts.14.1 and 14.2 LIS) referred to in art. 11.12 and DT 33ª.1 LIS".