The criterion of the Directorate General of Taxes in relation to the deductibility of the expenses linked to immovable properties in expectation of rent is very clear in the scope of the Tax on the Income of the Physical Persons. This criterion is as follows:

• Repairs and conservation costs, exclusively intended to put the property in a condition to be re-rented (eg painting, repairs, etc.), are deductible but only at the time when the properties are able to be rented and The time limit of 4 years.
• Any other expenses due during the period when the property is not rented is not deductible (for example, electricity, water, telephone, community, interest, IBI, amortizations, etc.).

In the scope of Corporate Tax, the criterion of the General Directorate of Taxes, until October 3, 2016, has been more ambiguous: the expenses derived from the lease of properties in expectation of rent are tax deductible for the purposes of Corporate Tax:

• Provided they comply with legally established conditions, in the terms of accounting registration, accrual according to accrual correlation of income and expenses and justification.
• That they do not have the consideration of fiscally non-deductible expense by application of some specific precept established in the TRLIS.

That is to say, the criterion of deductibility in the scope of Corporate Tax has been more uncertain, corresponding in each case to the organs of the Tax Administration the valuation of the evidence contributed by the taxpayer for the purposes of accepting or not the deductibility of these expenses.

And in the face of this uncertainty, the criterion applied by the Inspectorate in general has been to deny the deductibility of all expenses incurred in the period in which the buildings are not rented, alleging a lack of correlation with income and applying, Consequently, a criterion very restrictive for the taxpayer and without any logic.

The important innovation is that the General Tax Directorate has broken this ambiguity in Corporate Tax matters in the very recent Binding Consultation of October 3, 2016 (CV0503-16). In this Binding Consultation, the General Tax Directorate clearly states that:

• The expenses incurred by a company in the development of its business of leasing real estate, in periods when the buildings are left empty pending a new lease, will be considered tax deductible expenses, including also expenses By amortization.
• But the General Directorate of Taxes not only talks about expenses in general but also lists, in a broad and unopened way, the specific expenses that are deductible: water, electricity, gas, repairs, maintenance of gardens, Cleaning, expenses of real estate agents in charge of advertising and managing rents, interest on loans, IBI, garbage fees and depreciation.

Consequently, not only does the criterion of deductibility of expenses related to real estate in expectation of rent, but also the flexibility of the criterion of deduction in respect of Corporate Taxes, being broader than the criterion established for the Tax on The Income of Individuals, in which the fixed expenses in no case are deductible in periods in which the buildings have not been rented. Taking into account the legal uncertainty in which the taxpayer is moving lately in tax matters, it is to be appreciated that the General Directorate of Taxes issue Binding Consultations as this, so clarifying, and that it will avoid the filing of claims before the Courts.