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6.5. Deductions

Expenses accounted for in the financial accounts are, in principle, deductible. Article 14 of the Corporate Income Tax Law (CITL) only restricts the deduction of certain expenses the most significant of which are the following:

  • Remuneration of share capital (hidden dividend distributions);
  • Financial expenses on loans from related parties, regardless of their residence and the obligation to submit consolidated accounts, when the loans have been used to acquire shares or other types of securities in other companies of the same group, unless the taxpayer can prove the sound business reasons for the transactions;
  • Gambling losses;
  • Corporate income tax (which is an expense for accounting purposes);
  • Fines, both administrative and criminal, the constraint surcharge, and the surcharge for late submission of the tax return (late payment interest is deductible);
  • Gifts and donations to charities. However, public relations expenses related to clients and suppliers, personnel expenses (if they are customary), and publicity expenses are not considered gifts and are therefore deductible;
  • Provisions for internal pension plans; and
  • Expenses related to non-cooperative jurisdictions (see Sec. 13.5.), unless the taxpayer can successfully prove that payment is in remuneration of an actual service.

Severance Payments

Effective 2013, a limitation applies on the deductibility of compensations for the dismissal of directors and top managers. The limitation is either: (i) EUR 1,000,000 when the manager was subject to a special labor regime or commercial contract, or (ii) the legal severance compensation established by the Statute of Workers, which covers ordinary labor relationships.

Interest Deduction Limits

Effective 1 January 2012, a limitation applies on the deduction of financial expenses to all companies regardless of the identity and residence of the lender. Under this rule, companies can only deduct their net financial expenses up to 30% of their operating profit (EBITDA with certain adjustments), although net financial expenses up to EUR 1,000,000 are always deductible (see Sec. 13.2. for details).