The treatment of impairment losses in the new Corporate Income Tax Law
Corporate income tax is levied on the obtaining of income, which is recognized according to accounting methods for determining income/loss and governed by the accrual principle. This reference by tax legislation to accounting legislation when it comes to determining the tax base is the best guarantee that the income actually obtained by the taxpayer is taxed.
In contrast to that general principle, the Bill for the Corporate Income Tax Law published in the Official Parliamentary Gazette on August 6, 2014, contains an exception to the recognition for tax purposes of impairment losses on fixed assets. Specifically, this new rule affects property, plant and equipment, investment property, intangible assets, securities representing ownership interests in the capital or equity of entities, and securities representing debt. In other words, everything except receivables from debtors and inventories.
Starting January 1, 2015, in the event the law is finally approved on the same terms as the Bill for fiscal years commenced on or after that date, the impairment losses on those assets will not be deductible, whether or not they are recognized for accounting purposes, and if they are transferred, giving rise to a loss, that loss will only be deductible when it is realized vis-à-vis third parties not related to the group of companies to which the taxpayer belongs, or where they are removed from the balance sheet.
Thus, the restriction that already existed for fiscal years commenced on or after January 1, 2013 and which only affected the impairment of ownership interests in the capital or equity of other entities, is now extended to other assets.
This restriction is supplemented by the maintenance of the deductibility of the systematic amortization or depreciation established in the Bill for property, plant and equipment, investment property and intangible assets, including goodwill.
The wording of the law sent for passage through Parliament justifies this new approach with the debatable aim of expanding and evening out the corporate income tax base, moving it away from developments in the economic activity by not considering the value differences attributable exceptionally to those assets.