An Overview of the Principle of Causality in Tax Matters

The principle of causality in taxation states that to determine the taxable income, necessary expenses for income generation and capital gains are deductible.

The list of deductible expenses provided in Article 37 is not exhaustive, and expenses not explicitly mentioned can still be deductible if they meet the conditions of being necessary for income generation or maintaining the income source.

The Article 44 of the law identifies non-deductible expenses, and the list in it should be interpreted strictly.

💡 The deductibility of expenses in taxation is based on the principle of necessity, not indispensability.

💼 The concept of necessity is defined as what a sensible taxpayer would consider advisable for the success of their business.

⚖️ The principle of causality in tax law recognizes certain expenses as deductible, even if they don't directly contribute to generating taxable income.

📝 The principle of causality in tax matters determines the deductibility of expenses based on their contribution to generating taxable income or maintaining the income source.

💰 Expenses incurred solely for the purpose of earning dividends are not deductible as they do not contribute to producing taxable income or maintaining the income source.

⚖️ However, if expenses are incurred with the intention of consolidating a business, securing clients, or ensuring market synergies, they may be deductible based on their contribution potential.

The case of Webb highlights the importance of honoring obligations to maintain commercial reputation.

An important question arises regarding whether a company can deduct the expenses of defending its general manager.

The concept of 'normal' expenses depends on the type of business activity and should be reasonable in relation to income.

💡 Losses can be carried forward for a specific number of years if expenses exceed income.

📈 Reasonability of expenses is determined based on the level of income.

🔑 General expenses related to employee bonuses and benefits are deductible.

⭐ The video discusses the principle of causality in tax matters, specifically regarding deductibility of extraordinary bonuses and benefits given to employees.

⭐ To be deductible, the expenses must be general, meaning they must be given to all employees in the same conditions, based on objective criteria such as seniority, productivity, and performance.

⭐ If the expenses are not general, then they are not deductible, and the company will not be able to reduce its taxable income.

📚 The principle of causality in tax matters determines whether a expense is deductible or not.

💰 The law sets different criteria for deductibility based on the necessity, indispensability, and market considerations of the expense.

💼 Article 37 provides an illustrative list of deductible expenses, including expenses that help generate income or maintain the source of income.