In a recent ruling, the Supreme Court has clarified that the legal impossibility of deducting expenses accrued in previous fiscal years, when this would result in lower taxation compared to what would have corresponded in the year of accrual, cannot automatically prevent the deduction of expenses from prescribed fiscal years.

One of the issues that require greater attention when calculating the Corporate Income Tax is the treatment of movements in reserve accounts that correspond to the correction of accounting errors, i.e., expenses or income that, by mistake, were not recorded at the time of their accrual.

The General Accounting Plan’s Registration and Valuation Standard 22 qualifies these errors as “omissions or inaccuracies in the Annual Accounts of previous years for not having used, or not having done so adequately, reliable information that was available when they were formulated and that the company could have obtained and taken into account in the formulation of said accounts.” For practical purposes, and as is the case with changes in criteria, those expenses or income that are identified in a fiscal year subsequent to their origin (accounting errors) must be corrected retroactively, so that, in terms of equity, their effect is transferred to the year in which they are detected by posting them to a freely available reserve account, usually correcting the voluntary reserves item.

In the tax sphere, the Corporate Income Tax Law establishes as a general rule that expenses and income must be attributed for tax purposes in the fiscal year of their accounting accrual (Article 11.1). However, it is admitted as a special rule that expenses accounted for in the profit and loss account or in a reserve account in a period subsequent to their accrual (and income accounted for in a fiscal year prior to its accrual) can be deducted (or must be taxed) in the fiscal year of their accounting, provided that this does not result in a lower taxation than would have corresponded according to the general accrual rules (Article 11.3). For practical purposes, this special rule allows deducting expenses in a fiscal year subsequent to their accrual, and anticipating the tax allocation of income, provided that, in both cases, the application of this special rule does not lead to a reduction in taxation.

At this point, the key is to determine in which cases the application of the special rule can determine a lower taxation than would have corresponded if the expense or income had been recorded (and deducted or allocated for tax purposes) in its year of accrual.

By way of example, this could happen if the accounting and deductibility of an expense were deferred, allowing the generation of a higher tax base in the accrual year that would enable the application of a tax credit (for example, a deduction) whose application period would end in that accrual year.

The tax authorities, in numerous tax inspections and in various resolutions of the General Directorate of Taxes (among others, resolutions V0578-19 or V1814-16), have been making an expansive interpretation of the aforementioned special rule of allocation, understanding that the deductibility of expenses accrued in prescribed fiscal years necessarily generates a lower taxation, not allowing in these cases the deduction of said expenses in the fiscal year of their accounting.

However, the Supreme Court has recently come to settle this issue, with a criterion favorable to the taxpayer.

In its judgement of March 22, 2024 (appeal 7261/2022), it analyzes a case in which a company detected in fiscal year 2016 that in 2009 it had not accounted for (nor deducted in the Corporate Income Tax) expenses accrued in that year. In accordance with accounting regulations, it accounted for the expenses in the year in which it detected said error (i.e., in 2016), without modifying the accounts for fiscal year 2009. Having far exceeded the statute of limitations period for 2009, the Administration denied the deductibility of the expense in 2016, based on said statute of limitations.

The court concludes, however, that, although the rule establishes that the deductibility of any expense accounted for in a fiscal year subsequent to its accrual is conditioned on the requirement that there is no lower taxation, there is no specific limitation in the rule regarding expenses that are prescribed in the fiscal year in which they are finally accounted for. Therefore, if the accounting rule generally allows recording an expense accrued in previous fiscal years, and the tax rule expressly allows the deduction of expenses in the fiscal year of their accounting (subsequent to accrual), the deduction of the expense cannot be automatically prevented. Otherwise, the taxpayer’s economic capacity would be compromised, generating a case of over-taxation (in the case analyzed, if the contrary criterion were accepted, the expense was not deducted in 2009, the year of accrual, nor could it be deducted in the year of accounting allocation -2016-).

With this ruling, the Supreme Court significantly advances the discussion about the tax treatment of accounting errors, admitting the deductibility of expenses originated in prescribed fiscal years and limiting the analysis to the effective existence or not of a lower taxation that could have resulted from the deferral of expenses. This new criterion, as we see, represents a notable change from the administrative criterion of recent years, and should be considered in upcoming accounting and tax closings.


Antonio Viñuela Llanos y Pablo Sherschinski Luca de Tena