The TEAC may reject forgotten tax deductions even while the time limit to use them is still open

A company discovers that it was entitled to a Spanish Corporate Income Tax deduction for earlier tax years. The statutory period for using it has not yet expired. The Tax Agency nevertheless rejects it because it was not included in the return for the year in which it arose. Can a tax incentive be lost because it was not initially reported?

The Spanish Central Economic-Administrative Tribunal (TEAC) has brought a dispute of major importance for businesses back into focus.

In its decision of 23 June 2026, case RG 00/06920/2024, the TEAC held that employment-creation deductions for workers with disabilities which were not included in the self-assessments for their years of origin cannot be added directly to later returns. To use them, the taxpayer must first seek correction of the self-assessments for the years in which they arose, provided the right to do so has not become time-barred.

The result can be particularly severe: a company may lose the opportunity to use a deduction that it substantively generated, even though the general period for applying it has not yet elapsed.

The issue takes on an additional dimension when compared with the TEAC decisions of 17 July 2025 on research, development and technological innovation (R&D&I) deductions. In those decisions, the Tribunal recognised the protection of legitimate expectations when the Directorate-General for Taxation (DGT) changed its interpretation.

Are these criteria contradictory? Which deductions can be recovered? What happens when the year of origin is already time-barred?

1. The case: employment deductions for workers with disabilities that were not initially reported

The case before the TEAC concerned a company seeking to use employment-creation deductions for workers with disabilities generated in earlier years. The deductions related to 2018, 2019 and 2020, but the company had not included them in its Corporate Income Tax self-assessments for those periods. It later sought to include them in its 2021 return.

The issue was not merely whether the company had hired workers with disabilities or met the substantive requirements for the deduction. The prior question was whether it could recognise in 2021 for the first time deductions that should have been reported in 2018, 2019 and 2020. The Tax Agency rejected that approach. The matter reached the TEAC, which confirmed that the deductions first had to be evidenced in their years of origin.

The decision therefore distinguishes two moments that many companies regard as equivalent, but which are legally different: generating a deduction and actually applying it.

2. Generating a deduction is not the same as applying it

Corporate Income Tax provides for various tax incentives that may be used in later years. A company may meet the requirements for generating a deduction in a particular period but lack sufficient tax liability at that time to use it in full. In such cases, the Corporate Income Tax Act allows unused amounts to be carried forward to later periods, subject to specified limits. For example, a company may generate a deduction in 2022 and apply it partly in 2023, 2024 or subsequent years under the applicable rules.

Three concepts must be distinguished:

• Generation: the point at which the statutory substantive requirements for the incentive are met.
• Recording or substantiation: recognition and inclusion of the deduction for the period in which it is generated.
• Application: actual use of the deduction to reduce the tax liability.

The TEAC considers that a deduction not initially included cannot automatically be treated as a tax credit pending application. It must first be properly substantiated in the year of origin. A deduction reported and awaiting use is not the same as a deduction discovered years later that was never included in the relevant return. This distinction is the basis of the June 2026 decision.

3. The TEAC’s criterion: first correct the year of origin

Decision RG 00/06920/2024 states that when an employment-creation deduction for workers with disabilities was not included in the year in which it was generated, it cannot be included for the first time in a later self-assessment. The taxpayer must seek correction of the return for the period of origin. Once the deduction has been properly recognised, its later application can be considered under the statutory limits and time periods.

That correction remains subject to limitation periods. If the year of origin can no longer be corrected, the taxpayer may face a definitive obstacle. The TEAC’s interpretation is supported by an earlier line of decisions on tax credits and unreported deductions, including decisions on double-taxation deductions and investments in new fixed assets.

The central point is that the time allowed to apply a deduction does not replace the time allowed to substantiate its existence in the year in which it arose. The TEAC describes this decision as a relevant criterion that has not yet been reiterated; it is therefore not binding doctrine under Article 239 of the General Tax Act (LGT). That classification must be borne in mind when assessing its scope.

4. The real problem: application and limitation periods do not coincide

One of the most controversial issues is the coexistence of different time limits. Article 39 of Law 27/2014 on Corporate Income Tax allows certain deductions to be applied in later periods. As a general rule, deductions covered by the relevant chapter may be applied during the 15 immediately succeeding tax periods, while R&D&I deductions have a special 18-year period. These periods remain subject to the statutory conditions and limits.

Separately, the General Tax Act generally provides a four-year limitation period for seeking correction of self-assessments, subject to the statutory rules on calculation and interruption. A company might therefore generate a deduction in 2020, fail to report it, and discover in 2026 that it was entitled to it. Although the general period for applying the deduction may not have expired, the opportunity to correct the 2020 return may already be time-barred.

According to the TEAC’s criterion, the longer period for using the incentive does not allow it to be recognised for the first time in a later return when the year of origin can no longer be corrected. This is the most significant aspect of the dispute. The company may have met the substantive requirements of the incentive and still face a restriction because it did not initially substantiate it.

5. Practical example: a €36,000 deduction discovered too late

Imagine a company that increased its average workforce of employees with disabilities during 2020. Assuming all statutory requirements were met, it generated a deduction of €36,000. Its tax adviser, however, did not include it in the Corporate Income Tax self-assessment for that year. In 2026, during a tax review, the company discovers the omission.

The company has sufficient tax liability to use the deduction and believes it is still within the period under Article 39 of the Corporate Income Tax Act. It decides to include it directly in its 2026 return as a deduction carried forward. Under the TEAC’s criterion, that procedure would not be correct. The deduction had to be substantiated in 2020. If correction of that self-assessment is still possible, the company should use that procedure. But if the right to correct has become time-barred and no special circumstance supports another outcome, the incentive may be unusable.

The economic consequence would be significant. The company would not lose the deduction because the 15-year application period had elapsed, but because it had not substantiated the deduction in time in the year it arose. The example illustrates the difference between the two periods. The actual result would depend on filing dates, any interruption of limitation, and the circumstances of the case.

6. The employment-creation deduction for workers with disabilities

The incentive considered by the TEAC is governed by Article 38 of the Corporate Income Tax Act. It provides for a deduction linked to the increase in the average number of employees with disabilities compared with the previous tax period. The amount depends on the degree of disability. In general terms, the Act provides for:

• €9,000 per person per year for an increase in the average workforce of workers with a disability rating of 33% or more but less than 65%.
• €12,000 per person per year for an increase in the average workforce of workers with a disability rating of 65% or more.

Use of the deduction requires compliance with Article 38 and a correct calculation of the increase in average headcount. Hiring a worker with a disability is not enough by itself. The legally required increase and the other elements determining the amount of the incentive must be verified. Employment and Social Security records may therefore be essential evidence of its generation.

The TEAC decision adds a further requirement from the perspective of future use: the deduction must be properly reported for the year of origin.

7. The 2025 precedent: the TEAC protected legitimate expectations for R&D&I deductions

The dispute is particularly interesting when considered alongside the TEAC decisions of 17 July 2025, RG 00/01267/2025 and RG 00/05685/2024. Both addressed the late substantiation of deductions for research, development and technological innovation.

For years, the DGT had followed a favourable interpretation under which certain R&D&I deductions could be applied in later years without first being included in the self-assessment for the period in which they were generated. That interpretation appeared, among others, in binding rulings V0802-11, V0297-12 and V2400-14.

However, the DGT expressly changed its position in ruling V1511-22 of 24 June 2022. From that change onwards, it required the deduction to appear in the return for the year in which it was generated, or to be recognised through the procedures legally provided for that period.

The problem was clear: what about companies that had filed earlier returns in accordance with the Administration’s own favourable interpretation? The TEAC recognised that the new interpretation could not be applied retroactively to the detriment of taxpayers who had legitimately relied on the previous administrative doctrine. Legitimate expectations prevented the Administration from imposing, as a new condition, an entry that it had considered unnecessary when the return was filed.

8. The decisive date: 24 June 2022

The July 2025 decisions draw a particularly important distinction based on timing.

Self-assessments filed before the change in criterion

Where the self-assessment for the year in which the deduction arose was filed before 24 June 2022, the TEAC considers that the legitimate expectations of a taxpayer who acted in accordance with the administrative interpretation then in force must be protected. For the R&D&I deductions covered by that doctrine, later application does not necessarily require that they were initially included in the return.

Self-assessments filed after the change in criterion

Where the return was filed after 24 June 2022, the taxpayer can no longer rely on legitimate expectations based on the former interpretation. The taxpayer knew, or should have known, that the Administration had changed its position. If the deduction was omitted, the taxpayer must therefore seek correction of the year of origin within the statutory period.

This distinction is particularly relevant to companies with R&D&I projects spanning several years. What matters is not only the year in which the deduction was generated, but also the filing date of the corresponding self-assessment. The July 2025 decisions were issued in the procedure for unifying criteria, which gives them particular administrative significance.

9. Are the TEAC’s 2025 and 2026 decisions contradictory?

At first glance, there may appear to be a contradiction. In 2025, the Tribunal allowed certain R&D&I deductions to be applied later even though they had not initially been reported. In 2026, it rejected a company’s attempt to include employment-creation deductions for workers with disabilities that had not been declared in their years of origin.

However, the legal situations are not identical. The 2025 decisions relied on a specific factor: an earlier administrative criterion favourable to the taxpayer that was subsequently changed. The protection recognised by the TEAC was based on the principle of legitimate expectations.

By contrast, the June 2026 decision concerns a different deduction, for which the same sequence of favourable administrative rulings and subsequent change in interpretation was not identified. It would therefore be inaccurate to say that the TEAC reversed its 2025 doctrine in 2026. The more rigorous interpretation is that the Tribunal maintains a general rule requiring substantiation in the year of origin, while recognising an exception where specific legitimate-expectation circumstances exist.

The real question is how far that exception can extend to other tax incentives. The answer requires examining the specific administrative history of each deduction.

10. Can legitimate expectations be invoked for every forgotten deduction?

Not automatically. The principle of legitimate expectations protects certain expectations created by sufficiently clear acts of the Administration. It is not a general way to remedy every error in a time-barred self-assessment.

To assess whether it applies, the following matters, among others, should be examined:

• Whether a prior administrative criterion existed. An official interpretation must be identified that reasonably justified the taxpayer’s conduct.
• The date on which the self-assessment was filed. It is essential to determine which interpretation was in force when the decision not to include the deduction was made.
• The nature of the change in criterion. There must have been a relevant change in the administrative interpretation.
• The taxpayer’s actual conduct. Legitimate expectations cannot be presumed without examining the circumstances.
• Whether the incentive is the same as the one covered by the cited criterion. Administrative doctrine on R&D&I cannot automatically be extended to the employment-creation deduction for workers with disabilities.

Legitimate expectations may therefore provide a relevant defence, but it must be based on verifiable background material.

11. Limitation: what if the year of origin is already closed?

This is probably the issue with the greatest economic impact. Limitation restricts the ability to amend self-assessments for earlier years. If a deduction was not reported in the year it arose and that year can no longer be corrected, the TEAC’s general doctrine makes later recognition difficult. A long period for applying a deduction does not remove this problem.

Nor should the Administration’s power to verify tax credits from old periods be confused with the possibility of recognising for the first time a deduction that was omitted. Article 106.4 LGT requires the origin and amount of certain deductions from time-barred periods to be evidenced through the relevant self-assessments or assessments, accounting records and supporting documents. Article 66 bis LGT sets out specific rules on the powers to verify tax bases, amounts and deductions.

Those provisions do not amount to general authorisation to create new tax credits through returns for later years. The ability to verify an old deduction and the ability to recognise it for the first time are legally different questions. This distinction explains much of the position adopted by the TEAC.

12. What if the year is not yet time-barred?

Where the self-assessment for the year of origin can still be corrected, the situation is different. In principle, the company has a route to remedy the omission. It must seek correction of the relevant return or use the procedure applicable under the rules in force. The request should explain:

• the year in which the deduction was generated;
• the applicable statutory provision;
• the facts giving rise to the deduction;
• the correct calculation;
• the supporting documentation; and
• the treatment of the deduction in later returns.

Once the deduction has been recognised in the year of origin, its use in later periods can be examined. The statutory limits on application must still be respected, and it should be checked whether other returns also need to be amended. Correcting the year of generation does not mean the incentive can automatically be used in any year.

13. The underlying dispute: can a formal requirement cause the loss of a substantive right?

From a legal perspective, the issue creates a significant tension. On the one hand, the Administration needs tax credits to be properly declared and substantiated. Including the deduction in the year of origin helps verify the facts and prevents deductions from being added later without an adequate audit trail.

On the other hand, a company may have fully met the substantive requirements for generating the incentive. The deduction arises from meeting the statutory conditions, not from filing the return. The problem occurs when the initial omission prevents the company from using a tax benefit that it may have substantively generated.

Should legal certainty arising from limitation take precedence? Or should later substantiation be allowed while the statutory period for applying the deduction remains open? As a general rule, the TEAC favours recognition in the year of origin. However, the 2025 decisions show that this requirement may have limits where the Administration itself has created legitimate expectations to the contrary.

The dispute is not whether deductions must be justified. It is when an initial omission can permanently prevent the exercise of a tax right.

14. Consequences for tax advisers and finance departments

The decision requires close attention to the tax close for every financial year. A deduction that cannot be used immediately because tax liability is insufficient should not disappear from the tax analysis. It must be identified, quantified and correctly reported when required. Potentially available incentives should also be reviewed before the opportunity to correct the year of origin becomes time-barred.

This is particularly relevant to:

• Research, development and technological innovation. Projects may span several years, and eligible costs may be identified later.
• Employment of workers with disabilities. The calculation depends on the increase in average headcount and requires specific employment data.
• Incentivised business investment. The deduction may depend on retention, use or future compliance requirements.
• Double-taxation deductions. Identifying tax credits requires analysis of income, taxes borne and the applicable rules.

The main recommendation is not to confuse a deduction that has been reported and remains unused with one that was never declared.

15. What should a company do if it now discovers old deductions?

Before including a forgotten deduction in a current return, the company should carry out a structured review:

1. Identify the incentive and the year of generation. Check which rule governs it and when its requirements were met.
2. Review the original return. Determine whether the deduction was reported, partly applied or omitted entirely.
3. Calculate limitation. It is not enough to count four years from the financial year; filing dates and possible interruption events must be considered.
4. Check the application period. Verify that the deduction can still be used under the Corporate Income Tax Act.
5. Check for specific administrative doctrine. In particular, assess whether legitimate-expectation circumstances comparable to those recognised for certain R&D&I deductions exist.
6. Choose the correct procedure. If appropriate, correct the year of origin before using the deduction in a later year.
7. Document the incentive fully. Substantive evidence remains essential.

A rushed approach may lead to an adjustment, interest and, depending on the circumstances, a dispute over penalties.

16. Is this a definitive doctrine?

The TEAC itself identifies the decision of 23 June 2026, RG 00/06920/2024, as a relevant criterion that has not yet been reiterated. On its own, it is not binding doctrine under Article 239 LGT. It should not, however, be seen as an isolated decision: the Tribunal relies on earlier decisions that already required tax credits to be substantiated in their years of origin.

By contrast, the TEAC decisions of 17 July 2025 on R&D&I were issued in the procedure for unifying criteria. The current position therefore contains two elements that must be read together:

• General rule: deductions must be substantiated in the year in which they are generated; if omitted, correction should be sought within the statutory period.
• Specific protection: for certain R&D&I deductions, the DGT’s change of criterion of 24 June 2022 cannot prejudice taxpayers who filed earlier returns in legitimate reliance on the administrative interpretation then in force.

There is no general permission to include old deductions in later returns. But the protection recognised by the TEAC against adverse changes in interpretation cannot be ignored.

Conclusion: a deduction may still be in date and yet be unusable

The TEAC decision of 23 June 2026 highlights a tax risk that many companies do not know about. The period for applying a deduction does not guarantee that it can be recognised for the first time in any later tax year. If the incentive was not reported in the period in which it arose, the Administration may require correction of that self-assessment. If the right to correct has become time-barred, the deduction may be unusable even though the general application period has not expired.

The July 2025 decisions on R&D&I provide an important safeguard: where the requirements of legitimate expectations are met, the Tax Agency cannot change its interpretation and retroactively harm taxpayers who acted in accordance with the earlier administrative criterion. Both lines of authority must be considered together, without confusing their respective scopes.

For companies and tax advisers, the practical lesson is clear: it is not enough to generate a deduction correctly. Its existence must also be substantiated at the right time and through the legally appropriate procedure. An apparently minor omission in a Corporate Income Tax return can, years later, result in the loss of a substantial tax incentive.