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V0520-14 25 February 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

40% reduction not applicable to post-contractual non-compete compensation

A worker enquired whether the financial compensation received for a non-compete clause following dismissal could benefit from the 40% tax reduction. The Directorate General for Taxes (DGT) ruled that it is not applicable, as it does not constitute notoriously irregular income nor does it have a generation period exceeding two years.

The question raised

Application of the reduction under Article 18.2.a) of Law 35/2006 to non-compete compensation.

The DGT's ruling

Compensation for a non-compete agreement is classified as gross employment income. The 40% reduction under Article 18.2.a) of Law 35/2006 is not applicable because said amount does not appear in the list of notoriously irregular income set forth in the Tax Regulations. Furthermore, the period during which the compensation is generated does not exceed two years, as it is exactly that term.

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