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V1323-16 31 March 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · indemnización

Compensation for termination of commercial contracts is not subject to VAT nor eligible for the 40% IRPF reduction

A haulier requested clarification regarding the taxation of compensation received in 18 instalments following the termination of a commercial contract. The DGT ruled that VAT does not apply as there is no underlying consumption act, and for Income Tax (IRPF) purposes, it must be added to net income without applying the reduction for irregular income.

The question raised

Taxation in VAT and IRPF of the compensation.

The DGT's ruling

Regarding VAT, the compensation is not subject to the tax because it does not constitute consideration for the provision of services nor does it represent an act of consumption. Regarding Personal Income Tax (IRPF), the amount must be included as other business income in the net yield of modules. The 40% reduction for irregular income is not applicable, as the compensation does not derive from the cessation of activity nor is it attributed to a single tax period.

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