Today I would like to comment on an issue that not all companies may encounter, but which, if it arises, can have a certain economic impact. Can an expense generated in a prescribed year be recorded and deducted for Corporation Tax (CT) purposes?
First, two key tax time limits should be taken into account:
- Statute of limitations: 4 years
- Review of tax losses (Negative Tax Bases): 10 years
These two time limits can sometimes cause confusion, as they may appear, to some extent, contradictory.
It should be clarified that the Tax Authorities, although they may review tax losses from the previous 10 years, may only adjust them insofar as they affect non-prescribed tax returns, that is, those from the last 4 years.
The Supreme Court has recently changed its previous position (2024), meaning that the current situation is as follows:
FOR THE TAXPAYER
- An expense accrued in a financial year that is already time-barred and recorded now may not be deducted.
- An expense accrued in a previous financial year and recorded now may be deducted, provided that the year is not time-barred and that this does not result in lower taxation than would have applied had the expense been recorded in the year in which it accrued.
FOR THE TAX AUTHORITIES
- They may continue to review tax losses from the previous 10 years, subject to the limit mentioned above.
This recent change is detrimental to the taxpayer, as under the previous doctrine it was possible to deduct expenses accrued in prescribed years and recorded later, provided that this did not lead to lower taxation. This is no longer allowed, so this issue requires particular care.
If you find yourself in this situation or would like to understand what impact this could have on your company, we can discuss it whenever you wish.