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V0637-16 16 February 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for termination of a contract that never entered into force is taxed as employment income

A professional cyclist received €37,500 in compensation following an agreement to terminate a contract that never came into effect. The DGT has ruled that this amount is not exempt income and must be taxed as employment income.

The question raised

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

The DGT's ruling

The compensation is not exempt income for dismissal or termination, as the employment contract had not entered into force. As it does not fall under Article 7.e) of Law 35/2006, the amount received must be classified as employment income, since it replaces income from work that is not going to be performed.

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