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V0120-22 24 January 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Court-ordered personal injury compensation received abroad may be exempt from Personal Income Tax

A taxpayer inquired whether a $2,500,000 settlement received through a judicial conciliation act in New York following a road accident is exempt from Personal Income Tax (IRPF). The Directorate General of Taxes (DGT) ruled that the exemption applies if the amount corresponds to personal injury and aligns with what is judicially recognised under US regulations or the courts of that country.

The question raised

Taxation under Personal Income Tax (IRPF).

The DGT's ruling

Compensations for civil liability for personal damages (physical, psychological, or moral) are exempt in the amount legally or judicially recognized. An amount is considered judicially recognized both when set by a judge and when determined through intermediate formulas involving judicial intervention, such as a conciliation act. In accidents occurring abroad, the exemption is determined according to the regulations or the amount judicially recognized by the courts of that State.

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