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V1238-15 23 April 2015 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por cese

Directorial severance payments are fully taxable under IRPF

The DGT confirms that severance payments to top executives are fully taxable as there are no mandatory caps set by Royal Decree 1382/1985.

The question raised

A consultation is made regarding the tax treatment of the severance payment for the termination of the employment relationship, which in this case is determined by judicial resolution, concerning the application of the exemption provided for in Article 7.e) of the Personal Income Tax Law.

The DGT's ruling

Severance payments for senior management personnel are subject to Personal Income Tax (IRPF) because Royal Decree 1382/1985 does not establish mandatory maximum limits. As the exemption requirement under Article 7.e) of the Personal Income Tax Law (LIRPF) is not met, the amount is integrated as employment income. The reduction for irregular income may be applied pursuant to Article 18 of the LIRPF.

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