Companies frequently use the assets that they produce or buy in their normal operations for their own use. In such cases, these assets must be recorded and treated as fixed assets, rather than as inventory of finished goods. This classification has several accounting and financial implications (it affects the working capital; the asset must be depreciated…). I will focus in this post in the tax implications in Spain.

Read more: depreciation rates for fixed assets in Spain

Regarding the Spanish Corporation Tax, the main implications are the impairment losses and also the losses suffered intra-group dealings. Regarding the impairment losses, since 2015 the Law does not allow the deduction of impairment losses of fixed assets, whether tangible or intangible, including goodwill. In short, according to the current legal framework, only realized losses of fixed assets can be deducted for tax purposes. However, this rule is not applicable to assets classified as current assets (inventory); impairment losses of inventory are fully deductible as long as the tax payer can probe that the fair market value of such inventory is below its net asset value.

One note of caution: If a company ceases to use an asset and decides to sell it out in the short-term, according to the Spanish accounting rules, this asset should be treated as a non-current asset available for sale. Thus, the accounting loss which must be reported – as the asset should be valued at the fair market value-could not be deducted.

The second tax impact regards the losses derived from intra-group sales. The general rule is that the losses on the sale of fixed assets between companies pertaining to the same group are not deductible until one of the following events takes place: (i) the asset is written off (ii) sold to a third-party or, finally, (iii) when the seller or the buyer cease belonging to the group. Therefore, such losses are deferred for tax purposes. But again, this rule only affects fixed assets, but not current assets. In this latter case, there is not any restriction to the deduction of losses experienced in the sale of inventory between group companies.

There are other implications which must be considered. For instance, certain tax benefits are subject investment requirements. For instance, the special tax regime of the Canaries requires the tax payer invest at least EUR 100,000 in fixed assets.