Taxable Events, Income, and Estimation Methods Explained
What is a Taxable Event?
A taxable event is the source of income for the taxpayer, regardless of its origin.
Tax-Exempt Income
- Grants and allowances (extraordinary public benefits for acts of terrorism, aid received by those affected by HIV)
- Pensions and Social Security benefits (family benefits, public benefits by birth)
- Other public benefits (public scholarships, some awards)
What Composes the Taxpayer’s Tax Base?
The taxpayer’s tax base consists of the amount of disposable income in the tax period. This includes:
- Earned income
- Investment income
- Real estate income
- Economic activity performance
- Profits and losses
- Imputation of rental income
Income from Capital in Furniture
- Gross Returns: These are obtained from participation in equity in any entity, from the sale to third parties for capital, obtained by the redemption or sale of financial assets, and from intellectual property where the taxpayer is not the author.
- Deductible Expenses: Only the costs of administration and deposit of securities (stocks, bonds, treasury bills) are considered.
- Reductions: Reductions may be applied as established by law. These include yields from capitalization, life insurance, and disability insurance. Reductions also apply to income generated over a period exceeding two years or obtained irregularly over time.
Direct Estimation: Normal Method
How to Determine and Obligations
The net return is calculated using the accounting result obtained by the company. Necessary adjustments are made to this result in accordance with tax legislation, as accounting and tax results do not always coincide. While companies are not obliged to keep accounting records, they are required to maintain a logbook of income, expenses, capital goods, and a record of stores and supplies.
Economic Gains and Losses
What Are They and How to Determine Them?
Economic gains and losses are those obtained in the transfer of assets, whether onerous or lucrative. These arise from the sale of stocks, shares, and awards, both in money and in kind. An equity gain or loss occurs as a result of capital reduction or transmissions by the taxpayer. When a taxpayer dies, the profit is considered as such. Non-economic losses that are not justified, such as those due to consumption, gambling, or donations, are not considered.
They are determined by the difference between the transfer value and the acquisition value.
- Transfer Value: Real amount of the good minus operating expenses.
- Acquisition Value: Amount of the good plus expenses minus depreciation.
Simplified Direct Estimation
Who Applies It, How It Is Determined, and Obligations
This method applies to employers and professionals who are not benefiting from the objective assessment scheme and who meet the following requirements:
- The net amount of turnover in the previous year does not exceed €600,000 per year.
- The application has not been withdrawn.
- Any activity that the taxpayer engages in is under the standard direct estimation system.
Simplified direct estimation starts with the accounting profit, similar to normal direct estimation. It applies tax benefits developed for corporate tax for small-sized companies. A simplified amortization schedule, specific to this method, is also applied. The performance is reduced by 5% for activity in respect of supplies and costs that are difficult to justify in most companies. In agricultural and livestock enterprises, this reduction is 10%.
Employers must keep the following record books: sales and earnings, purchases and expenses, and capital goods. However, these books are not necessary if accounting is maintained. Professionals have the same obligations imposed in the normal direct assessment scheme.