What determines whether income is recognised or not

The Spanish General Directorate of Taxes (DGT), in binding ruling V1961-25, has addressed the tax treatment of a rent-back transaction with a purchase option, providing clarity on its classification and implications for Corporate Income Tax purposes.

The case concerns an entity that transfers part of its machinery to a financial leasing company while simultaneously entering into a rent-back agreement including a purchase option at a residual price. The key issue is whether the transaction should be treated as a disposal generating taxable income or as a financing arrangement.

In the absence of specific rules in the Corporate Income Tax Law, the DGT refers to accounting standards, particularly the Spanish General Accounting Plan. Under these rules, where the contractual terms indicate that substantially all risks and rewards of ownership are retained —especially when there is no reasonable doubt that the purchase option will be exercised— the arrangement must be classified as a finance lease.

Under this approach, the transaction does not constitute a genuine disposal of the asset but rather a financing mechanism. As a result, no accounting or taxable income arises at the time of the transfer, and no gain or loss is recognized in the corporate income tax base . The asset remains on the transferor’s balance sheet and continues to be depreciated under the same conditions as before the transaction.

Additionally, the proceeds received are recorded as a financial liability, reflecting the financing obtained. The financial cost associated with the transaction is allocated over the term of the agreement and recognized in profit or loss using the effective interest method.

From a tax perspective, the DGT confirms that the related financial expenses are deductible, provided that the general deductibility requirements are met. However, such deduction is subject to the limitation set out in Article 16 of the Spanish Corporate Income Tax Law.

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