A binding information document published on Tuesday on the Finance Portal details a decision signed in April this year by the deputy director-general of the tax management area, in response to a binding information request submitted by a construction company that lost the “deposit” paid in a real estate deal.
The response from the Tax Authority (AT) applies only to this specific taxpayer. However, the interpretation may serve as a precedent for other companies in the construction sector facing a similar situation, as the understanding reflects the legal-tax reading of the tax services regarding this matter.
The AT considered the specific corporate purpose of the company, namely its role as a building contractor and its engagement in the restoration of buildings for both public and private works, when admitting that the concerned company could offset the lost deposit.
In its response, the Finance Authority states that “the signing of promise to buy and sell contracts, with advance payments, is objectively a routine act of the company’s activity, with the loss of such payments being an inherent risk of the type of activity conducted.”
The contractor entered into a promise of sale and purchase (CPCV) for an urban plot, paid the deposit, but later opted not to proceed with the transaction after considering it “financially and economically unfeasible,” describes the AT in the published information.
The CPCV contained a clause stipulating the loss of deposit amounts in case of non-compliance.
Accounting records showed that the buyer “indeed lost the paid deposit” and “at the time of the contract’s signing, it was not foreseeable that the purchase would not be finalized.”
Therefore, the AT considers that “the loss of the deposit can be regarded as arising from the regular activity conducted by the applicant” and “contributes to obtaining or ensuring income subject to corporate tax, thereby allowing its deductibility for tax purposes.”
In examining this case, the AT took into account that the expense to be deducted from the tax was supported by documentation, as required by the IRC Code, which specifies in Article 23 that documents must include various elements, such as the supplier’s name, their Tax Identification Number (NIF), the transaction value, and the date on which goods were acquired or services rendered.
Simultaneously, the AT also considered that the companies involved had no relationships between them.
“As there are no special relationships between the parties involved in the transaction, the transfer pricing regime, set forth in Article 63 of the IRC Code, which states that ‘[…] terms or conditions substantially identical to those normally contracted, accepted, and practiced between independent entities in comparable operations should be agreed upon, accepted, and practiced,’ does not apply to this case,” the AT declares in the binding information.
