The complexity of the rules on offsets for IRPF purposes
In the run-up to the deadline for the voluntary filing of IRPF returns, a brief reminder regarding the rules on offsets is offered below. If during 2016, as a result of the sale of a real property asset or financial investment, you made a loss which exceeded your salary income or the results obtained from your economic activity, you may not have paid too much attention to your IRPF return, assuming that its result will either be zero or an amount of tax refundable. Yet you would be wrong to assume this and in danger of defaulting on your tax obligations.
You are under the obligation to file a return even when your net income for the year is a negative amount or zero, and this is due to the fact that IRPF is a binary tax for the purposes of which income is divided up into two distinct categories: on the one hand, there is the income made up fundamentally of salaries, income from business or professional activities and amounts received from leases of real property; and on the other hand, there is savings income, which includes dividends, interest and capital gains made on sales.
These two categories of income are taxable at different rates, with compartmentalized offset regimes which prevent the offsetting of one kind of income against the other, other than in certain very exceptional circumstances. This compartmentalization means that the taxpayer is not taxed on his/her net income for the year, as a result of which situations can arise in which, paradoxically, the he/she is under the obligation to pay taxes even when his/her net income is either zero or a negative figure.
There are those that argue that this characteristic goes against the essential nature of IRPF as a direct tax which is levied on the total income of individuals; in addition, it differs in this sense from the tax levied on the income of legal entities, i.e. Corporate Income Tax, in which there is full integration of income.
Although the rules on offsets are generally fairly rigid, there are exceptional cases in which the compartmentalization in relation to the offsetting of different categories of income is relaxed.
This is the intention behind the rule introduced in 2015 and which is to remain in force through to 2018, which allows for the offsetting of losses made in 2013 and 2014 on the sale of assets maintained for less than one year, against earnings forming part of the savings tax base. Such offsetting is subject to no limit, meaning that it is possible to cancel gains obtained in 2016 in their entirety by utilizing losses from 2013 and 2014.
The good thing, despite the complexity of the offset rules, is that there is a four-year period in which to offset negative income against positive income. This means that the taxpayer can make investment and divestment decisions in good time, analyzing the tax saving which can be obtained through the offsetting of losses.
Garrigues Tax Law department
This article was published on Diario Sur