Spain: Crossfire in the Spanish tax authorities

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Spain: Crossfire in the Spanish tax authorities

bootello.jpg
ripoll.jpg

Vicente Bootello

José Ignacio Ripoll

In recent months we have been witness to a doctrinal battle still being fought by various administrative bodies regarding the interpretation of whether or not late-payment interest should be treated as a deductible expense for corporate income tax purposes.

The origin of the recent controversy was the decision handed down on May 7 2015 by the Central Economic-Administrative Tribunal (the TEAC) – the ultimate administrative authority on interpretation – in which it stated its new position on the deductibility of late-payment interest for corporate income tax purposes and concluded that, because late-payment interest is an expense incurred on the breach of a statutory provision and is compensatory by nature, it cannot be deductible. The main problem arises from the fact that the decision was based on the position taken by the Supreme Court in judgments referring to a much earlier corporate income tax law (in force until 2003), and that the TEAC decision itself referred to the legislation in force before the reform carried out by Law 27/2014.

The publication of this decision was followed by (i) the publication of a number of rulings by the Directorate-General of Taxes (DGT), and (ii) a report and clarifying note to said report by the State Tax Agency that seems to conclude, in summary, the following:

  • The current law lays down a general principle according to which all expenses per books are deductible unless otherwise stipulated by the law itself.

  • Late-payment interest is a finance cost from an accounting standpoint and, accordingly, it should, in principle, be deductible (up to the statutory limits on the deductibility of this type of expense).

  • Late-payment interest is not included among the nondeductible expenses expressly regulated in the Corporate Income Tax Law. It does not arise from the accounting for corporate income tax (not even where the assessment refers to such tax); it cannot be characterised as a gratuity; and it cannot be treated as an expense incurred on actions contrary to the legal system.

  • Lastly, as regards the timing of recognition of the expense, a distinction must be made between interest relating to the year in progress and interest relating to previous years, that is, interest relating to previous years will be deductible when it is recorded for accounting purposes (with a charge to reserves), provided that this does not give rise to lower taxation.

The foregoing does not serve to reduce the problem of legal uncertainty, given that the binding nature of the DGT rulings (as a manifestation of the principle of legitimate expectations) collides head-on with the binding nature, on all other administrative bodies, of the interpretation taken by the TEAC. In fact, the tax inspection is following the TEAC restrictive doctrine nowadays during tax audits of companies.

Though we believe the open interpretation of the DGT is more in line with the spirit and letter of the current law, we will have to wait for upcoming decisions of the TEAC before the denouement is made known to us, given that at present there is no safe harbour in which taxpayers can take cover from the crossfire of this latest doctrinal skirmish.

Vicente Bootello (vicente.bootello@garrigues.com); and José Ignacio Ripoll (jose.ignacio.ripoll@garrigues.com)

Garrigues, Madrid

Tel: +34 915145200

Website: www.garrigues.com

more across site & shared bottom lb ros

More from across our site

Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Gift this article