In its ruling of 22 February 2024, the Spanish Central Economic and Administrative Court (TEAC) addressed the issue of late accreditation of deductions in Corporate Income Tax (IS), focusing specifically on research, development, and technological innovation (R&D&I) activities.
In the past, the Spanish General Directorate of Taxes (DGT) allowed taxpayers two options for accrediting deductions that were not included in the self-assessment of the fiscal year in which they arose: (i) to correct the self-assessment of the year in which the deduction arose, or (ii) to include the deduction in a self-assessment of a subsequent period, even if the original period had already been prescribed. This more flexible approach made it easier for companies to manage their tax affairs, particularly in cases where it was uncertain whether the necessary requirements had been met at the time of the original filing.
However, on 24 June 2022, in replies V1510-22 and V1511-22, the DGT drastically changed its criteria, stating that deductions should only be allowed in the self-assessment of the fiscal year in which the expenses were incurred (i.e., by correcting the self-assessment), with no possibility of doing so in subsequent years if the original year was time-barred.
The Spanish Supreme Court indirectly addressed this controversy in its ruling of 24 October 2023. Although it did not resolve the issue directly for procedural reasons, the ruling expressed a favourable criterion for the late accreditation of deductions, without the need to correct previous self-assessments, in cases where the taxpayer did not have the necessary information to accredit the deduction at the time.
The TEAC, in its ruling of February 2024, issued its first pronouncement following this Supreme Court ruling. The specific case concerned a company requesting the correction of self-assessments for prescribed fiscal years in order to include deductions for technological innovation corresponding to expenses incurred in those years. The TEAC concludes that it is possible to accredit and apply R&D&I deductions in subsequent years to the years in which the expenses were incurred, provided that the legal requirements and the 18-year period for applying the deduction are met, even if the years in which the deductions were incurred are time-barred. In addition, the tax inspectorate is required to verify the validity of the expenses incurred for which a deduction is allowed.
This decision of the TEAC is a favourable criterion for taxpayers as it recognises the possibility of accrediting deductions for R&D&I generated in previous years without the need to correct the self-assessments of the years in which the right was generated, as long as they fall within the period for the application of the deduction (i.e. 18 years). This may represent a significant change in future administrative practice and a relief for companies that were unable to accredit these deductions at the time due to a lack of certainty as to whether the requirements had been met.
It is important to note that although this TEAC criterion is not yet binding on the tax administration, it opens the door to a possible review and relaxation of the rules by the DGT. Affected taxpayers should be alert to future rulings of the TEAC and consider how this new criterion may affect their deduction strategies and requests for rectification of pending self-assessments.
In conclusion, the TEAC decision of 22 February 2024 marks a turning point in the interpretation and application of R&D&I deductions in corporate income tax. Although it is a single ruling, its significance and the implicit support of the Supreme Court suggest a possible evolution towards greater flexibility and legal certainty in the accreditation of these tax deductions.
