The Supreme Court decides on the erroneous registration of income and expenses

It is not possible for the Tax Administration to temporarily allocate the expenses recorded according to the accrual criterion
and not do the same with the income recognized in advance of their accrual.

In an inspection, the situation of a taxpayer is regularized for not having correctly applied the accounting standards for the determination of the accounting result. Thus, it considers that part of the expenses do not correspond to the period, but the income recorded in advance (customer advances) is maintained for the determination of the tax base, by applying the regulation provided for the allocation in case of accounting error in the record of income and expenses (LIS / 04
art.19.3, currently LIS art.11.3).

The taxpayer is not satisfied, understanding that the accrual principle should also have been applied to income, and therefore have obtained a lower accounting result, so he resorts to the AN, which agrees with him.

However, the Administration files a cassation appeal to determine if the joint interpretation of the accrual principle and the regulation of erroneous accounting of income and expenses (LIS / 04 article 19.1 and 3, currently LIS article 11.1 and 3), allows the Tax Administration regularize the expenses recorded in advance of their accrual to allocate them temporarily according to said accrual criterion and, however, not to do the same with the income recorded in advance of their accrual, when determining the taxable income of the IS.

The Supreme Court understands that the literal interpretation of the Administration is absolutely rigid: in cases in which the taxpayer only imputes improperly the income for doing so in the period prior to accrual, it accepts the criterion of the accounting registration with respect to said income, once verified that the advance has not produced less taxation.

But he completely forgets about the taxpayer’s expenses that he did allocate correctly, expenses that he maintains as of the following fiscal year.
The foregoing causes a higher taxation for the company than it would have resulted if the accrual principle had been applied correctly, that is, if the Inspection’s adjustment had consisted of transferring the misimputed income to the correct year (the next one).
It considers that the National Court is completely correct when it understands that the exception to the general rule of imputation according to accrual cannot be interpreted in a way that allows the Public Treasury to apply two different criteria globally to the totality of the income and expenses of a certain exercise. If this is the case, the result is distorted for the benefit of the Public Treasury and supposes an infringement of the principles of economic capacity and objectivity that should govern the actions of the Tax Administration (Const articles 31.1 and 103). In other words, a guarantee or security clause in favor of the Tax Administration becomes a rule that allows collection, even if the income obtained in the year is not correct.
Taking into account the foregoing, it dismisses the appeal.