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A taxpayer inquired about the correct way to declare back pay from 2020 received in January 2021. The Directorate General of Taxes (DGT) ruled that such payments must be taxed in the year they became due (2020) and noted that a supplementary tax return is not required if filed before the tax campaign begins.
This clarification provides certainty regarding the accrual principle for back pay, preventing taxpayers from incorrectly reporting income in the year of receipt rather than the year it was earned.
The tax team reviews your specific situation.
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