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V0017-15 7 January 2015 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancia patrimonial

Compensation for lack of life insurance is taxed as a capital gain under Personal Income Tax

A query was raised regarding whether compensation claimed from a company for failing to take out mandatory life insurance for a deceased employee is subject to Inheritance Tax or Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) has determined that it does not constitute a taxable event for Inheritance Tax and must be taxed as a capital gain under Personal Income Tax.

The question raised

Tax treatment in Personal Income Tax (IRPF) of the potential compensation.

The DGT's ruling

Compensation for economic damages arising from the failure to contract life insurance does not constitute a taxable event for Inheritance and Gift Tax. In Personal Income Tax (IRPF), it is classified as a capital gain, as it represents a variation in net worth that is not income. The exemption for civil liability is not applicable since it concerns property damage rather than personal injury. As it does not derive from a transfer of assets, it is included in the general taxable base.

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