The Directorate General of Taxes (DGT) aligns itself with the Central Economic-Administrative Tribunal (TEAC) regarding the nature of the compensation of negative tax bases, and establishes that it is an option.
Compensation of negative tax bases
A company that must file an untimely self-assessment of the Corporation Tax corresponding to the 2016 financial year, raises a query to the General Directorate of Taxes asking whether the fact of presenting extemporaneously the Corporation Tax corresponding to that year, prevents the compensation of negative tax bases of previous years (General Law of Taxes art.119.3).
The Directorate General of Taxes, maintaining the doctrine followed by the Central Economic-Administrative Court, understands that the fact of not presenting the self-assessment corresponding to the 2016 fiscal year related to the tax concept Corporation Tax within the period regulated by the tax regulations (LIS art.124), implies that the consulting company did not exercise the right to compensate any negative tax base opting for its total deferral , it is not possible to rectify this option through the presentation of an extemporaneous self-assessment.
Negative results from previous years
As a result of the existence of tax rules which differ from accounting rules, it is not possible to fully equate the concept of negative profit or loss with that of a negative tax base. The difference stems from the positive and negative adjustments that have been made to determine the tax base.
The Tax Law recognises the possibility of offset negative tax bases of previous years with the positive ones obtained by the company, provided that the company proves, through the exhibition of the accounting and documentary supports, the origin and amount of those whose compensation it intends, whatever the year in which they originated. The right of the Administration to initiate the procedure of verification of the negative tax bases compensated or pending compensation, expires 10 years from the day following the end of the corporate tax return period corresponding to the tax period in which the right to compensation of these negative tax bases was generated (LIS art.26).
It is expressly established that they must be negative bases that have been subject to liquidation or self-assessment. The offsetting of the negative tax bases of previous years may not exceed the positive income derived from the operations of the year.
The maximum compensable amount is limited to 70% of the tax base prior to the application of the capitalization reserve and the offsetting of the negative tax bases themselves.
Limits have been established to the compensation of negative tax bases to taxpayers whose net amount of turnover for the 12 months prior to the start of the tax period is at least 20,000,000 euros (LIS disp.adic.15ª), as follows:
- if it is at least 20,000,000 euros and less than 60,000,000 euros, 50% of the tax base prior to the capitalization reserve and the compensation of the negative bases;
- if it is at least 60,000,000 euros, 25% of the tax base prior to the capitalization reserve and the compensation of the negative bases.
Whatever the applicable limit, negative tax bases can be offset up to the amount of 1,000,000 euros.
Under certain conditions, there is a total exclusion from compensation of negative tax bases, when the following requirements are met:
- acquired participation;
- prior degree of participation;
- linking; and
- status of the acquired entity.
It recalls that the compensation of negative tax bases is not conditional on the financial recovery of losses (TEAC 11-7-89).
If you have any questions about these bases, you can contact our advisors in any of our offices,so that we can help you solve it as soon as possible.