Is it the end for Business Angels in Spain?

| The non-deductibility of the provision for depreciation of shares is against business angels |

Deductibility of the depreciation of shares in other companies was allowed until 2013. However, the need to increase corporate tax collection, which is decreasing year after year, forced to modify some articles of the Spanish Corporation Tax Law.

One of those articles is that referring to the deductibility of provisions for depreciation of the stake. The justification for the change was that, allowing such deductibility, taxpayers were taking the same loss twice: one in the company that incurred the losses and another in the company which participated in it.

However, this premise is not met: those who incur losses may deduct them but only if the company is able to obtain profits in the future to offset those incurred losses, whereas the investor records the loss but, should the investee recover, the portfolio depreciation should be reversed. Therefore, there is no place for a double tax benefit.

By contrast, we should bear in mind that anyone investing in a business (either a start-up or an existing one) invests resources obtained through the activity (unless there is leverage) on which taxes have already been paid. Thus, it is logical to think that if you invest in another company, and consequently generate economic activity, you should be entitled to take the loss if the investment has a negative result.

Unfortunately, since 2013 you can only take the loss at the time of the sale of the shares or when the subsidiary is dissolved and liquidated (not even the judicial declaration of bankruptcy is valid to allow the deduction of the provision).

To sum up, in an environment where supporting private initiatives is extremely important, this change in the law is jeopardizing them.