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V0667-20 2 April 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por falta de preaviso

30% tax reduction cannot be applied to compensation for lack of notice

A query was raised regarding whether compensation for lack of notice paid to a senior executive allows for the 30% reduction under Article 18.2 of the IRPF Act. The Directorate General for Taxes (DGT) ruled that it is not applicable, as it does not constitute redundancy pay nor does it involve a generation period exceeding two years.

The question raised

Whether the 30 percent reduction of Article 18.2 of Law 35/2006 is applicable to compensation for lack of notice.

The DGT's ruling

Compensation for lack of notice does not have the nature of severance pay, but is rather income from employment pursuant to Article 17.1 of the LIRPF. As it is not included in the list of income obtained in a notoriously irregular manner under Article 12.1 of the Regulations, it must be analyzed whether it has a generation period exceeding two years. Since this compensation arises with the dismissal itself and is equivalent to the wages of the unserved notice period, there is no generation period exceeding two years. Therefore, the 30% reduction under Article 18.2 of the LIRPF is not applicable.

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