IFRS 16 – Leases

On March 3, 2024, the Corporate Income Tax (“CIT”) Services Division published Circular 3/2024. This circular aims to clarify doubts regarding the CIT implications of IFRS 16. Specifically, it clarifies the PTA’s understanding of the amortization rates for assets subject to right of use by correcting point 9 of Circular 7/2020.

Previously, PTA’s understanding was that the amortization rates specified in tables I and II of the depreciation and amortization regime (Regulatory Decree 25/2009) should be used for assets subject to right of use to calculate amortizations accepted for tax purposes.

However, this understanding created uncertainty and significant discrepancies between accounting and taxation. This was particularly the case when the amortization of the underlying assets accepted for tax purposes was lower than the amortization resulting from the lease term. Therefore, a change was sanctioned to this administrative understanding when the lease agreement does not transfer ownership of the underlying asset to the lessee at the end of the lease term, and there is no possibility of exercising a purchase option:

• Assets under right of use must be amortized from the lease start date until the end of the useful life of the asset under right of use, or until the end of the lease term, if earlier.

Impact of new understanding

This new understanding aligns the tax treatment with the accounting treatment provided for in IFRS 16. Consequently, companies will not need to accrue to their taxable income any amortizations resulting from the application of IFRS 16 that exceed the rates specified in the depreciation and amortization regime for the underlying assets.

Companies will now be able to recover any CIT overpayments made in the past due to the accrual of these amortizations through an extension of the period for the available means of reaction, as granted by Circular 3/2024.