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V0531-18 26 February 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for financial loss resulting from professional malpractice is subject to capital gains tax

A taxpayer inquired whether compensation received from an insurance company due to an attorney's malpractice is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that it is not exempt, as it constitutes economic loss rather than personal injury.

The question raised

Admissibility of the declaration of the compensation received and its tax treatment under Personal Income Tax.

The DGT's ruling

The exemption under Article 7.d) of the Personal Income Tax Law only covers compensation for personal damages (physical, psychological, or moral), not pecuniary damages. As it concerns compensation for contractual civil liability, it must be classified as a capital gain. This must be included in the general taxable base and is subject to state and regional taxes.

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