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V0540-19 ·13 March 2019 ·consulta-vinculante Medium impact
Tax

Legal costs are exempt from VAT for the losing party and may constitute capital gains for the winner

A lawyer has requested clarification regarding the VAT and Income Tax treatment of court-ordered legal costs. The Directorate General of Taxes (DGT) has clarified that the payment of legal costs constitutes compensation rather than a provision of services. Consequently, no VAT is applicable to the losing party, although the lawyer must still issue an invoice to the winning party.

In 6 key points

How it affects those involved

This ruling clarifies the tax treatment of legal costs in litigation, distinguishing between the compensation nature of the payment and the professional service provided, thereby defining the VAT and Income Tax obligations for both parties.

Lifecycle

2019-03-13PublishedPublished in the BOE
Official text Based on BOE data (boe.es). Information, not advice.

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This analysis is informational only and does not constitute legal advice or create a client-adviser relationship. BM Consulting.
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