Tax and Customs Authority
Case No. 2013 001629, and concurring decree of 28 January 2014, made available on 19 February 2014
Bad debts not covered by Article 41 of the Corporate Income Tax Code – tax consequences of their derecognition
With this binding information, the TCA determined that this decree impaired the understanding confirmed and disclosed in the second paragraph of the instruction sheet (ficha doutrinária) issued on the subject of “Bad Debts” (Cases No. 1759/93 and 3783/02) while the Official Accounting Plan was still in force.
According to the previous understanding “claims outstanding for more than 2 years and 100% provisioned, can be cancelled, irrespective of the same having been claimed in court or not and whether or not a special company recovery and c reditors’ protection procedure or enforcement, bankruptcy or insolvency proceedings is under way ”.
In this information, the TCA considered, in short, that a financial asset can only be derecognised when the contact-based rights to reception arising therefrom are exercised, expire or are transferred to another entity, which only takes place with the occurrence of any of the causes of extinction of obligations provided for in the Portuguese Civil Code .
Accordingly, the TCA emphasised that, in case of derecognition of claims from bad debts – without the requirements set out in Article 41 of the corporate income tax code being fulfilled so that the claim may be considered irrecoverable for tax purposes -, the “costs” associated to the irrecoverableness of the claim constitutes a positive component of the taxable income, the amount of which must be inserted in Figure 07 of the Form 22 return, unless the cause of derecognition is the extinction of the creditor’s right .