According to tradition in the world of taxation, the month of July is the month of TAX and, as our readers know, all companies whose fiscal year coincides with the calendar year must file the Corporate Income Tax between the 1st and 25th of July every year.
For this reason, we want to take advantage of this period to discuss the compensation of negative taxable incomes from previous financial years, commonly known as “BIN’s” in Spanish.
Firstly, in order to define concepts, we must be clear on the origin of the calculations. Negative taxable incomes, as the name suggests, are the negative results of previous financial years for which a company has the right to compensate, following some guidelines to apply for it. Let’s discuss how the compensation works.
Firstly, we must draw up the income statement. The company’s Profit and Loss account shows its Accounting Profit, which is not the same as the Taxable Profit.
The accounting profit is determined by the provisions of the General Accounting Plan, the Commercial Code, the Capital Companies Law and the resolutions of the Accounting and Account Audit Institute (ICAC). It shows us the amount of expenses and income paid and received by the company throughout the financial year. On the other hand, the taxable profit is calculated in accordance with the Corporate Income Tax Law.
This means that our starting point will always be the accounting profit to subsequently end up with the tax result and, therefore, calculate the Corporate Income Tax. In order to do so, we must analyse and study whether Non-Accounting Adjustments are necessary, in such a way that we obtain the Taxable Income of the tax. The following table helps to clarify this:
ACCOUNTING PROFIT |
+ Permanent positive differences – Permanent negative differences |
ADJUSTED ACCOUNTING PROFIT |
+ Temporary positive differences – Temporary negative differences – Negative taxable income from previous financial years |
TAXABLE INCOME X Type of tax rate |
GROSS TAX PAYABLE |
– Deductions and tax credits |
NET TAX PAYABLE |
– Withholdings and payments on account |
TAX DIFFERENCE PAYABLE |
According to the above, and focusing on the issue at hand, let’s discuss the cases in which the compensation of BIN’s can be applied, since we must pay attention to the particularities of the Law.
The compensation of BIN’s is regulated under Article 26 of the Corporate Income Tax Law 27/2014, of 27th November. In said Law, the cases for their application are specified, which are detailed as follows.
Moreover, special attention must be paid to negative taxable incomes that will not be subject to compensation, which will be those meeting the following circumstances:
Having seen and broken down the legislation on this subject, all we need to know is the amount of the company’s tax credit. These incomes, which must be included in the self-assessment of corporate income tax (form 200), fully broken down by year, will, where appropriate, reduce the entity’s taxable profit, ultimately resulting in a tax benefit for the entity.
Not only do we need to know where to include negative taxable incomes for their correct compensation, we must also be aware of every detail of the legislation to confirm the origin (or not) of its inclusion in the tax, as well as its application, determining whether any limit should be applied or if compensation simply does not apply.
A special mention must be made with regards to the taxpayer’s obligation to prove the reality of their claims, and that the Corporate Income Tax is filed by means of self-assessment (Form 200). However, said filing implies the assertion of the origin of the negative bases that are included. This means that the negative results must truly be in accordance with the tax legislation, otherwise they could be subject to parallel assessments by the tax authorities and penalties.
It is essential to keep all the documentation that has generated these tax losses and that at some point the entity will apply as compensation. Now, since there is no time limit for the compensation of these negative incomes, it is even more important to keep the costs and supporting documents that generated these negative bases safe, since the mere fact of not having these supporting documents would mean that the Tax Administration, in the event of a check, would have no way of determining the origin of the tax credit, thus annulling them. Remember that the Law provides that the Tax Administration has a period of 10 years to initiate a procedure to verify tax losses. However, after this period, the tax losses applied can be verified by proving the filing of accounts with the Companies Registry and by producing the Tax Form and accounting books for the corresponding period.
In light of the foregoing, we highly recommend that as taxpayers and those ultimately responsible for their companies, you seek the best possible advice on tax and commercial matters, as on most occasions good foresight and planning is the best investment for your company.
[1] Transitional Provision 34 of Corporate Income Tax Law 27/2014
[2] INCN: Net turnover. This amount is roughly assimilated to the turnover or volume of income.
The original conditions of the city of Malaga and its coast (climate, geographical location, gastronomy,…
The rules for distributing dividends in capital companies are set out in Royal Legislative Decree…
The Supreme Court, in a recent ruling (STS 707/2023, of February 28) ruled on whether…
The presence of a notary public and the public faith that he or she imparts…
Individuals who acquire their tax residence in Spain as a result of moving to Spanish…
We obtain a favourable ruling in an eviction trial condemning the tenant to vacate the…