BASQUE COUNTRY AND NAVARRE: Keep track of unpaid debts

When are expenses for unpaid debts fiscally deductible?

When any of the following circumstances occur on the deadline for the annual accounts (in Araba and Bizkaia), or on the accrual date of the tax (in Gipuzkoa and Navarra):

✓ The debtor has been declared bankrupt.

✓ The debtor or, if it is a legal entity, any of its directors or representatives, is being prosecuted for asset stripping.

✓ The company has initiated a judicial or arbitration claim against the debtor.

✓ 6 months have passed since the due date of the obligation.

How can this last scenario be monitored?

Although the tax adjustments are simple, their future monitoring is somewhat more complex. For example:

✓ If there are income from recoveries and the previous impairment was deductible (because 6 months had already passed), that income will be taxed. However, if it was not deductible, it will not be taxed.

✓ If there are no recoveries, the amounts that were not deductible in one fiscal year (because 6 months had not passed), will be deductible at the end of the new fiscal year (since that period will have elapsed).

All this requires monitoring the age of each of the unpaid debts (not only for possible legal claims, but also for tax purposes).

Is there any way to simplify this?

Yes, for tax purposes, to calculate the non-accounting adjustments for each year, it is sufficient to cancel those from the previous year (or the accumulated balance of adjustments for unpaid debts made in previous years) and make a new adjustment according to the remaining unpaid debts and their age as of the closing date (as if it were the first time).

Our professionals will assist you in this task and in any other matter related to the taxes that affect your company.