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V0301-25 17 March 2025 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos de actividades económicas

Professional indemnity payment taxed as business income

A professional received a 45,000 euro compensation after resolving a services contract through out-of-court settlement. The DGT determines that, as no employment relationship was established, the amount constitutes business income and is not exempt.

The question raised

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

The DGT's ruling

The compensation cannot be classified as income from employment because the employment relationship has not been recognized by authorities or social jurisdiction. As it derives from a service provision contract, it is classified as income from economic activity. Therefore, the exemption for dismissal does not apply, nor does the 30% reduction for irregularity in time or a generation period exceeding two years.

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