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V0262-21 16 February 2021 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · intereses de demora

Late payment interest on redundancy compensation must be taxed as capital gains

A query was raised regarding whether late payment interest on compensation for contract expiration (under Art. 49.1.c of the Workers' Statute) is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that the compensation itself is not exempt and that the interest must be taxed within the savings tax base.

The question raised

Taxation of the aforementioned interest under Personal Income Tax (IRPF).

The DGT's ruling

The severance pay for termination of contract is not an exempt income, but rather earned income from employment. As the severance pay is not exempt, the exemption for interest does not apply. Late payment interest is compensatory in nature and must be taxed as capital gains included in the savings tax base.

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