As in other areas of life, the rumor mill sometimes becomes an apparent dogma of faith. And how could it be otherwise, in taxation too.
Input VAT deduction over the following four years
Take as an example one of the most commonly accepted “urban tax legends” concerning the distribution of deductible expenses of a commercial activity (in our case, the pharmacy office). We refer to the sentence: “… I deduct this expense next year, since I have four to do so …”.
We get to the heart of the matter, with the “dangerous analogies between taxes”. It is true that the regulations on value added tax (VAT) allow entrepreneurs to deduct input VAT during the four years following the date of issue of the said invoice: “… The right to deduct can only be exercised in the declaration – Regulation relating to the settlement period during which the holder has borne the deductible installments or those of successive installments, provided that the period of four years has not elapsed, from the birth of the aforementioned right …. »(Article 99 Three and Five VAT Laws).
But this possibility does not exist, in the regulation of the Income Tax of Individuals (IRPF), which is the one that is applied in the estimation of the performance of an economic activity (pharmacy), since the we find the principle that the income and expenses will be invoiced during the accumulated tax period.
It is quite normal that in the accounts of a pharmacy (and any business) invoices from previous years could “appear” which were not duly deducted and recorded. Faced with this situation, legality tells us that a modification of the profit and loss account for the year to which the said expenditure “appeared” corresponds should be made. This would imply the presentation of a document before the Tax Agency, in which, due to the inclusion of this “forgotten expense”, the tax result of the pharmacy would obviously be lower and this would lead to less taxation present or future. We all know that the response to these types of complaints before the Consolidated Revenue Fund is not swift and on some occasions it can result in an overall requirement of the activity.
From a theoretical point of view, there is an exception to the above which establishes: “… that if, the extemporaneous charging of expenditure supposes a taxation equal to or greater than that which would have corresponded according to the regularization criterion, said expenditure is included in the tax base of the fiscal period in which they are recorded. In the event that the posting after the effective date of the invoice would result in less taxation, the principle of accumulation would prevail and the tax already presented to which the invoice was attributable should be modified if we want to benefit from its deduction… ” .
But to go to the practice and to the reality of the requirements that the tax administration makes at the present time, in which there is only a telematic relationship with this body, in which a contribution to the electronic headquarters of the requested documentation is required, without communication mediation with any official, the taxpayer’s defense is very frustrating.
Real example in a pharmacy office
A pharmacy that has not deducted an expense produced in 2018 in the income statement for that year, doing so in the IRPF 2019, because there is no lower tax for this fact. Well, in a requirement for the 2019 financial year, the tax management service of the corresponding administration denies this possibility one after another by arguing by means of “copy and paste” without any reference to the specific situation of the party concerned that this is possible, eliminate the said expense from the tax operating account of the pharmacy in 2019. You must first pay and, subsequently, submit a request for restitution of undue income in relation to your account of 2018 result, where said expense has not been deducted for tax purposes.
As the reader will be able to verify before the conclusions are reached in the case, the treasury, first orders you to pay without being sufficiently accredited the said obligation then resorts that it will take a certain time (months or even a year) while the “subject taxpayer” despairs, in an unnecessary bureaucracy, which would have resulted in the estimation of the allegations more than justified.
Anyway, it must be the age, but whoever subscribes these lines preferred a personal relationship with the staff of the Tax Administration, who on many occasions avoided this senseless transfer of papers in order to achieve to a better taxpayer-administration relationship. “Tempus fugit”
Juan Antonio Sanchez.
Economist tax advisor. Collegiate Church 7654.
Managing Partner TAXFARMA
Image source: Freepik