Corporate tax base adjustments related to tangible assets – Part 2

23 July 2014

In our April 2014 newsletter we started to discuss the corporate tax base adjustments related to tangible assets. To continuing the above discussion, this material puts special emphasis on the procedures to be followed upon the scrapping of tangible assets.


The book value upon scrapping of a tangible asset recorded with value is not a cost incurred in the interest of the enterprise and, as such, it is added to the corporate tax base if the fact of, and the reason for, scrapping are not adequately supported by documents. During its inspections the NTCA often requests the reasons for classifying a higher-value tangible asset as irreparable, worn out etc. to be corroborated by photos and expert documents. The removal of scrapped assets also needs to be adequately documented (e.g. by minutes of handover-takeover or an invoice about the removal), just as their destruction, with particular attention to scrapped assets classified as hazardous waste. The cost recorded upon derecognition of a missing tangible asset may not be classified as a cost accounted for in the interest of the enterprise either if it can clearly be established that the absence would not have occurred if due diligence had been exercised. Obviously, the assessment of the last two adjustments is entirely subjective. Accordingly, the tax authority has been given relatively wide-ranging powers to interpret the concepts of due diligence and adequate documentation.


In any case, in order to avoid cross-examination by the tax authority, the scrapping scheme as a whole, as well as the documents issued and the circumstances linked to the missing items are recommended to be discussed with, and examined by, an auditor or tax consultant. Scrapping and missing items are important not only in terms of corporate tax; it is also necessary to present their effects on value added tax. If during its inspection the NTCA finds that scrapping and the missing items are not credibly corroborated by documents, it may establish a tax shortfall in respect of the value added tax payable on the regular market value of the derecognised tangible assets, regarded as freely transferred products.