Accounting and Registration Obligations

Gross tax base and accounting

Corporation Tax is closely linked to accounting. So much is this so, that to determine the gross tax base for this tax you need to use the accounting result as a basis. Article 10.3 LIS indicates that the tax base will be calculated by correcting, through the application of the provisions established in the LIS, the accounting result determined in accordance with the rules provided in the Commercial Code, in other laws relating to said determination and in the provisions issued in development of the aforementioned rules. Thus, those aspects that are not regulated in the LIS will not be subject to amendment, and will be incorporated into the gross tax base in accordance with accounting regulations.

Another example of the importance of accounting in Corporation Tax is article 11.3 LIS, which states that for an expense to be deductible, it needs to be accounted for. Specifically, it states that expenses that have not been accounted for in the profit and loss account, or in a reserve account if established by a legal or regulatory standard, will not be tax deductible. An exception to this is assets that can be amortised in a free or accelerated way, and other cases in which regulations expressly indicate that they do not need to be accounted for on the balance sheet.

Once the tax adjustments have been made to the accounting profit per the LIS, the compensation of negative tax bases from previous tax periods is deducted from the resulting amount, to determine the gross tax base that should be declared in the corresponding self-assessment.

In general the gross tax base will be determined by the direct estimation method, i.e., based on the accounting result, although the objective estimation method must be applied when the LIS determines its application, and, alternatively, indirect estimation, in accordance with General Tax Law 58/2003, which is applied when the Tax Agency does not have the information required to fully determine the gross tax base.