Tax base: what it is – Dictionary of Economics

Definition of tax base

The tax base constitutes one of the structural elements of the tax and article 50 of Law 58/2003, of December 17, General Tax Law defines it, as the monetary magnitude or of another nature that results from the measurement or valuation of the fact taxable that is configured in the regulations of each tax.

Methods of determining the tax base

(i) Direct estimate

Through this method, the tax base is determined by the data entered by the taxpayer in books and records, such as accounting books and/or documents, supporting documents, declarations presented…

It is the most widely used method in practice, for example, it is applied to Corporate Tax or Personal Income Tax to calculate the income from economic activities in direct estimation, and in both cases the tax base is found by the rule of income minus expenses.

(ii) Objective estimate

Using this method for calculating the tax base, magnitudes, indices, modules or data provided for in the regulations of each tax are applied, and therefore the tax base is not real but estimated.

For example, to calculate the performance of economic activities in Personal Income Tax (IRPF) by means of the objective estimation method, the corresponding signs or modules provided for each activity are used (thus for the case of activities textile trade, the modules are the number of hired personnel, the number of hours worked by the owner, the square meters of the premises, the consumption of electrical energy…)

(iii) Indirect estimate

When the Tax Administration cannot have the necessary data for the complete determination of the tax base applying the methods indicated above, the application of the indirect estimation method is necessary in a subsidiary and exceptional way.

For example, in the event that the taxpayer has lost the accounting books and the supporting documents for the operations noted therein, the Administration may calculate the tax base by applying some assessed means, such as data or background information held on equivalent assumptions. or through elements that indirectly allow to prove the existence of the assets and income of the taxpayer.

Raúl del Cacho, professor of Tax Law at EAE Business School