Tax revenue loss on Corporate Income Tax returns

AUTHOR: Susana Arroyo. Tax Manager at Bové Montero y Asociados


Corporate Income Tax (CIT) revenue for the current year shows a loss of around 2.3 billion euro, mainly due to refunds to be paid out to taxpayers.

The substantial drop in the ability of CIT to generate funds is largely due to the weak economic situation that has accompanied the pandemic. The situation has translated into huge losses for many companies who have experienced a considerable drop in sales. This in turn has had the inevitable effect that revenue generated from CIT prepayments back in April has been drowned out by the losses resulting from the current economic crisis.

The combination of both factors, tax refund applications from taxpayers and low tax revenue so far this year, represent one of the worst tax collection returns ever.

It goes without saying that other taxes have been similarly affected by the crisis. Personal income Tax (PIT) has been hit by the loss of jobs and lower income resulting from temporary layoff plans (known as ERTEs in Spain), VAT has felt the effects of consumers’ self-imposed austerity, while vehicle registration tax receipts reflect the large drop in sales in the automotive industry.

At the same time, the growing legal uncertainty surrounding investment vehicles such as ICVCs (investment companies with variable capital) is leading large numbers of investors to move these operations to countries like Switzerland or Luxembourg, where they are offered greater tax benefits of the kind that up until now they have also enjoyed in Spain. This will involve the relocation of many asset management companies of great economic value, undoubtedly reducing the money reaching public coffers via taxation. It is estimated that in just four years the investment in Spain through this kind of vehicle has fallen by over 50%.

The European Commission, the IMF, and the Banco de España all foresee a major impact on the Spanish economy. The coronavirus crisis will certainly take a heavy toll.

There are turbulent times ahead, as the lack of tax revenue can only be addressed with a steep tax increase in all areas. Even more so considering the need to repay the European aid that Spain has just received to combat the devastating effects that the pandemic is having on our economy.


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