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V0767-16 25 February 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · condena en costas

Legal costs award treated as capital gain within the general tax base for Personal Income Tax

A taxpayer inquired about the taxation of a legal costs award following a successful lawsuit against a bank. The Directorate General of Taxes (DGT) ruled that this amount constitutes a capital gain due to its compensatory nature.

The question raised

Impact of the amount corresponding to the award of legal costs on the personal taxation of the taxpayer.

The DGT's ruling

The award of legal costs creates a credit in favor of the prevailing party, whereby the payment of attorney and solicitor fees is considered compensation. This amount constitutes a capital gain pursuant to Article 33.1 of the Personal Income Tax Law. As it does not derive from the transfer of assets, it is integrated into the general taxable base in accordance with Articles 45 and 48 of the Personal Income Tax Law. The change in net worth occurs when the judgment establishing the award becomes final.

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