BASQUE COUNTRY: Know if you can deduct your provisions

Is any provision that I account for deductible?

In general, accounting provisions are an expense that your company can deduct in the Corporate Tax. However, a negative list is established for which the following expenses for provisions are not deductible:

• Derived from implicit or tacit obligations.
• Related to long-term remuneration for personnel.
• Concerning compliance costs of onerous contracts that exceed the economic benefits expected to be received from them.
• Derived from restructurings, except if they refer to legal or contractual obligations and not merely tacit ones.
• Related to the risk of sales returns.
• Remuneration of personnel through formulas based on equity instruments, whether satisfied through their delivery or in cash.
• Those corresponding to expenses or losses that do not qualify as deductible for determining the taxable base of Companies; as well as financial expenses derived from adjustments arising from updates of the values of non-deductible provisions.

What happens with the provision for liabilities?

One of the most common provisions is the one set aside for liabilities, which your company must account for if there is any litigation from which they may arise (for example, due to a customer's claim, due to an appealed tax settlement, etc.). In these cases, you can account for the provision for the claimed amount and deduct it as an expense, without waiting for the judgment. Keep in mind that it is necessary for the claimed concept to be deductible: thus, provisions for fines are not deductible.

And what about the provision for warranties?

Similarly, if your company provides repair and review warranties in its sales of goods or services, when closing the accounts for the fiscal year, you can account for as an expense not only the amount actually incurred for that reason but also a provision to cover the risk of incurring those expenses in the future.

In this case, the amount of the deductible provision is calculated by multiplying the balance of sales with live warranty at the end of the fiscal year by the percentage resulting from the following quotient:

Warranty expenses for the current fiscal year and the two previous ones / Sales with warranty for the current fiscal year and the two previous ones

 

This also applies to allocations for covering accessory expenses for sales returns.

And is the provision for environmental actions also deductible?

The provision for environmental actions is only deductible if it corresponds to a plan formulated by the taxpayer and accepted by the Tax Agency.

Our professionals will clarify any questions related to the accounting and tax deductibility of your provisions.