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A taxpayer inquired whether compensation received for damages resulting from the suspension of a public contract due to COVID-19 allows for the 30% reduction applicable to irregular income. The Directorate General for Taxes (DGT) ruled that this reduction is not applicable, as there is no generation period exceeding two years, nor does the payment constitute compensation for the cessation of economic activity.
This ruling clarifies that compensation for contract suspensions due to COVID-19 does not qualify for the tax relief intended for irregular income, as it fails to meet the specific criteria regarding the duration of the income generation period or the nature of the cessation of activity.
The tax team reviews your specific situation.
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