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V0061-20 15 January 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for material damage resulting from a breach of fundamental rights is not exempt from Income Tax

A query was raised regarding whether a court-ordered compensation of 15,000 euros for a breach of fundamental rights is exempt from Income Tax (IRPF) under civil liability rules. The Directorate General of Taxes (DGT) ruled that it is not exempt, as the judgment pertains to material damage rather than personal injury.

The question raised

Taxation of compensation under Personal Income Tax.

The DGT's ruling

For compensation for civil liability to be exempt under Article 7.d) of the Personal Income Tax Law, it must be for personal damages (physical, psychological, or moral). Compensation for material damages or economic losses does not enjoy this exemption. Only the portion corresponding to psychological or moral damages would remain exempt if it could be independently identified.

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