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V1414-22 16 June 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancias y pérdidas patrimoniales

Court costs awarded by judgment are capital losses, but legal defence expenses are not

A taxpayer has enquired whether being ordered to pay court costs, along with their own solicitor and procurator fees, affects their Personal Income Tax (IRPF). The Directorate General of Taxes (DGT) has ruled that court costs paid due to a judgment constitute a capital loss, whereas legal defence expenses are considered consumption expenses with no tax implications.

The question raised

Impact on Personal Income Tax (IRPF) of the order to pay legal costs and legal defense expenses (lawyer and court representative).

The DGT's ruling

The order to pay legal costs by the prevailing party constitutes a loss of assets, as it is not a consumption expense. In contrast, legal defense expenses (lawyer and court representative) are an application of income to consumption and cannot be considered a loss of assets. Losses from legal costs are imputed to the period in which the judgments become final and are included in the general tax base.

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