Differed Losses new change in the Law for Strengthening Public Finance
The entering into force of the Law 9635 for Strengthening of the Public Finance, implies great changes and modifications for all the taxpayers, naming some examples such as the application of the value added tax (VAT), changes in the tax period and the new section capital gains and losses. All these changes imply many and diverse responsibilities for the taxpayer.
The regulation at hand also brought tax benefits that the taxpayer can use, for example the possibility to deduct the loss of previous periods according with article 8 section g) of the Law of Income Tax, which states that the taxpayers can deduct such losses in a period of five years for agricultural activity taxpayers and three years for corporate or commercial activities.
We must be clear of the difference between a financial loss and a tax loss, result of the non-deductible expenses and non-taxable incomes, being the tax loss the deductible expense that the Tax Administration will accept, also complying several additional requirements: to be legally registered in the accountability in a trial balance account in the retained earning section, which is in the tax conciliation and that its differed income tax is registered.
But the following question arises: Can I deduct as expense the losses I declared in September 2019? According to the general law established in the transition VI of the income tax law, such loss cannot be deducted. But if the company has tax losses due to Covid-19 effects, this 2020 end of quarter, will have the right to reduce it in the future.
This is where we must have this tax benefits that might help the taxpayer to mitigate this negative impact product of the Pandemic.
Alberto Porras Rojas
GCF Consultores Partner, member of the international firm TGS Global.