- On 13 October, the Government presented in Parliament the General State Budget for 2022.
- The accounts relied heavily on European funds and included a minimum taxation in corporate tax.
- A budget is, besides a spending plan, a set of tax rules: reading it in time makes it possible to plan the following year.
On 13 October 2021, the Government presented in Parliament the General State Budget for 2022. The accounts relied heavily on European funds and included a minimum taxation in corporate tax, one of the most relevant aspects for companies. It was the first step in a parliamentary process in which the text could still change. Until final approval, any figure or measure should be taken as provisional.
A state budget is usually read in political terms, but for a company or a family it is above all a practical document. It decides how much is spent and on what, but also what is collected and under what rules. Those rules determine deductions, incentives and rates that influence everyday decisions such as investing, hiring, paying dividends or planning a family-wealth transaction. That is why tax advisers follow the process closely every year.
What was presented
The draft included, on the one hand, the State’s spending plan for the following year, with a notable weight of European funds, which financed an important part of the planned investments. On the other, it set out revenue measures, including the minimum taxation in corporate tax, an aspect especially relevant for companies with deductions or low taxable bases. A minimum taxation limits the effect of deductions and can raise the effective tax of some companies.
A budget is, besides a spending plan, a set of tax rules. During its passage through Parliament, the parliamentary groups can propose amendments, so the initial figures and articles are not necessarily the final ones. This obliges anyone wishing to plan to distinguish between what is proposed and what is finally approved. Companies that plan on the initial draft risk having to redo their calculations.
The small print
For companies, the small print of each budget, that is, deductions, minimum rates and incentives, can change investment decisions. A deduction that disappears, a minimum rate that is introduced or an incentive that is extended alters the calculation of what a decision really costs and when it makes sense to take it.
Tax detail can tip the balance of an investment. A purchase of equipment, a hiring or a reorganisation may be more or less attractive depending on how it is taxed. And for a family with assets, changes in the taxation of income, inheritance or property can alter the advisability of certain transactions, so it is worth following the changes closely. It is worth talking to the adviser before closing significant transactions at year-end.
Reading in time
Reading it in time makes it possible to plan the following year. While the rule is being processed, it is worth following its development, as the text may change, and analysing with tax advisers how it would affect each company. Anticipating the effects helps to adjust cash flow, the investment calendar and dividend policy. It also makes it possible to talk to the bank with projected figures rather than hunches.
A practical way of doing this is to prepare two or three scenarios with the most likely measures and calculate their effect on profit, cash and year-end taxes. That way, when the final text is published, only the figures need updating. Planning with the rule in hand avoids surprises at year-end. This practice is valid for any significant regulatory change, not just budgets.
Those who read the small print in time decide with an advantage over those who discover it when settling up.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
