The ICAC in its consultation of 21 May 2020 has clarified the accounting treatment to be given to force majeure ETEs arising from the COVID-19 crisis, concluding that the provisions of Consultation 5 of BOICAC 94 of June 2013 would be applicable.
force majeure ERTES
Royal Decree-Law 8/2020, of 17 March, establishes that in ERTEs due to force majeure they give rise to two effects:
(a) Partial exemption from the company contribution
This means that in those companies that have carried out an ERTE, it is the State that assumes the costs (or part of them) of the social security contributions to be paid for the duration of the ERTE.
(b) Suspension of the obligation to work
On the other hand, the obligation to work for the employee and to pay the employer is suspended. Likewise, in this case it is the State that assumes the obligation to pay the employees subject to the ERTE an unemployment benefit for the duration of the temporary lay-off.
Accounting treatment of force majeure ETEs
In its consultation of 21 May 2020, the ICAC clarified the accounting treatment to be given to these ERTEs, concluding that the provisions of Consultation 5 of the BOICAC 94 of June 2013 would be applicable in both cases.
With regard to the social security contributions and partial (or total) exemption from payment:
- The waiver of payment is considered a non-refundable subsidy.. The accounting treatment is similar to the bonuses received by companies for training courses, therefore:
- The company shall record the expenditure on employer's social security contributions in fullas if there had been no such exemption.
- The effect of the partial (or total) exemption should be recognised as revenue. to be included directly in Equity and which is taken to the P&L account in correlation with the years in which the subsidised expenditure takes place. In this case, because of the type of expenditure subsidised, all income must be taken to profit or loss in the year itself.
- This will mean that the taxpayer will have recorded, on the one hand, the full social security expenditure for the year and, on the other hand, the income corresponding to the amount exempted from payment (75% or 100%) by way of a subsidy.
- However, if such subsidies are insignificant, in accordance with the principle of materiality, the ICAC allows them to be accounted for by directly reducing the amount of social security contributions payable by the company and not having to be accounted for as a non-refundable subsidy.
With regard to the salaries borne by the State:
- In this case there is a temporary suspension of the obligations of both parties. (employee and employer)
- The company should only record the salary expense actually paid in the year, and it is not necessary to record the salary expense for the whole year and a subsidy, as there is no actual remuneration of the company for services rendered and it is being assumed by the State.
- But, if the company did not meet the conditions in order to take advantage of the force majeure ERTE, it should accounting for a liability at least the amount of the amounts of staff salaries taken over by the State.
- In conclusion, the company will see a reduction in its personnel expenses for the part of the salaries that it has not paid because its employees are on ERTEs.
Incidence on corporate income tax of force majeure ETEs
- The social security expenditure registered in the accounts and unsatisfied, should be considered tax-deductible and in line with the tax treatment of the income produced by the exemption.
- The exemption of part of the social security contributions (treated as subsidy) must be taken to the P&L and will be considered taxable income. In this case, the grant shall be taken in full to the profit or loss for the year in which it is awarded.
- Additionally, the subsidy does not compute for the purposes of increasing the Black Turnover Amount (INCN) and, to the extent that it is recorded in an account 747 of "other grants, donations and legacies transferred to the profit or loss for the year", does not undermine the calculation of operating profit for the purpose of determining the limit on the deductibility of financial expenses for the year.
- With regard to the personnel expenditureThe only expenditure recorded as expenditure is that which is actually incurred, has no impact on corporate income tax.