ICAC: Landlords will not have to pay tax on rent reductions agreed as a result of COVID-19

This past Friday, February 19, 2021, the Spanish Accounting and Audit Institute (Instituto de Contabilidad y Auditoría de Cuentas, ICAC) published the long-awaited ConsultationPDF. The Institute takes the view that, where the tenant and the landlord have reached an agreement to reduce the rents as a direct consequence of COVID-19, that reduction must be treated as contingent rent, with a direct impact on the profit and loss account (P&L) for the fiscal year in question. Specifically, it states:

In cases where the contract included a clause on the possibility of reducing the payments in the event of a decline in, or closure of, the business imposed by a legal or regulatory provision, it is clear that the reduction in the payment by the tenant and in the amount collected by the landlord, respectively, must be treated as contingent rent.

In the absence of such a provision, this Institute is of the opinion that, in the exceptional context brought about by COVID-19, where the tenant and the landlord have reached an agreement to reduce the rents, it would be possible to opt to consider that the economic event triggering the decrease in the price for the assignment of the right of use is not related to subsequent fiscal years, but to the current economic situation, a circumstance that would lead to classifying that agreement not as a lease incentive but as a temporary adjustment of the rent to the supervening economic situation and, consequently, to giving it the treatment provided for contingent rents.