A few months ago, the Central Economic-Administrative Court (“TEAC”) in its ruling of 31 May 2021 analysed the possibility of deducting the losses that may be generated by the difference between the acquisition value of the donated asset and its market value at the time of the donation from the donor’s personal income tax.
Article 33.5 of the Personal Income Tax Law confirms that “Losses due to transfers among parties or donations shall not be computed as capital losses”.
Traditionally, the Tax Administration rejected the possibility of deducting the loss arising after making a donation, however, the Regional Economic-Administrative Court of the Valencian Community (“TEARV”) in a decision of 30 September 2019, allowed a more flexible interpretation with respect to the one that the Tax Administration had been applying and admitted the possibility of incorporating tax losses arising from donations in the taxable base of Personal Income Tax, i.e. the loss resulting from the difference between the market value of the donated goods and the acquisition cost.
Unfortunately, on 31 May 2021, the TEAC returned to the traditional interpretation, rejecting the ruling issued by the TEARV and pointing out that this deduction is not covered by law and that, being losses that are derived from actions that depend solely on the donor’s will, the real intention could be to try to cover up tax avoidance.
The aforementioned resolution of the TEAC does not seem to be exempt from debate and it would not be rare to see resolutions in the future that once again accept the TEARV’s criteria, and it would even be advisable to change current regulations.