B Law & Tax
31 May 2023

Tax advisor: Deductibility in the Corporate Tax denied after justifying it with general considerations without effective impact on the assets

The High Court of Justice of the Balearic Islands examines the deductibility of an impairment provision made by the taxpayer in 2014 for five properties.

The Chamber begins by highlighting that, according to accounting rules, a property experiences impairment when its book value is greater than its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. In this situation, a tax-deductible provision for impairment can be made, but it is the responsibility of the declarant to justify it to the tax authorities. In this case, the appellant did not provide justification in response to the Administration’s request, nor did it do so during the judicial process, where it did not request evidence.

It is revealed that the party did not record any impairment in the previous fiscal years for these properties. Therefore, the impairment cannot be justified in the general macroeconomic situation of 2014, as mentioned in the presentation made, since the economic situation of that year was not different from that experienced in the years 2010, 2011, 2012 and 2013. There were no relevant circumstances in the country’s economy during that year that differentiated it from previous years.

In addition, it is important to highlight that these premises had guaranteed leases, three of them with a duration of up to 25 years, which provides great security to the lessor. None of these leases had been terminated or were in the process of termination.

Although there has been a plan to reconvert and close bank offices for years, since four of these premises housed such offices, the Administration demonstrated in the administrative file, without being refuted by the party, that the number of office closures was not significant in 2014.

Moreover, what is more relevant is that the self-service premises did not experience changes. Leases, including those that housed a bank office, continued without problems.

Therefore, the Board agrees with Management’s reasoning that impairment must be justified on a real and concrete basis. It is not acceptable to provide a provision for impairment based on general and vague considerations that do not have an effective impact on the specific assets on which such impairment is alleged.

The economic difficulties experienced in 2014 were not very different from those of previous years. If that situation did not lead the company to account for the impairment on those specific properties, the party cannot rely on the economic situation in 2014, substantially similar to previous years, to claim such accounting, as the party is bound by its own actions.

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