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V0207-16 21 January 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

Compensation for non-pecuniary damages following dismissal is taxable as employment income

An individual received compensation for non-pecuniary damages after being dismissed from an interim position within the Public Administration. The Directorate General for Taxes (DGT) has ruled that, as it replaces unpaid wages, the amount constitutes employment income and is not exempt from tax.

The question raised

Taxation of the compensation under Personal Income Tax (IRPF).

The DGT's ruling

The compensation is classified as income from employment due to its substitutive nature regarding the remuneration that could not be received. As it is income whose amount depended on a judicial ruling, it must be attributed to the tax period in which the ruling becomes final. This income is subject to withholding tax.

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