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A taxpayer has enquired about the tax treatment of compensation received for the failure to deliver a property and the deductibility of legal expenses. The Directorate General for Taxes (DGT) has ruled that such compensation constitutes a capital gain, which must be taxed in the period during which the court judgment becomes final.
This ruling clarifies the tax classification of breach of contract compensation, confirming it is treated as a capital gain rather than income from work or other activities, and establishes the timing of the tax liability based on the finality of the judicial ruling.
The tax team reviews your specific situation.
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