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V1425-19 13 June 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · costas procesales

Recovery of legal costs constitutes a capital gain for the prevailing party

A query was raised regarding whether the collection of legal costs following a successful lawsuit affects Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that this amount is compensatory in nature, serving to restore the party to their previous position, and therefore constitutes a capital gain.

The question raised

Impact on Personal Income Tax (IRPF) regarding the receipt of procedural costs.

The DGT's ruling

The award of legal costs creates a credit in favor of the prevailing party; therefore, the collection does not constitute professional income but rather compensation for expenses incurred. This constitutes a capital gain pursuant to Article 33.1 of Law 35/2006, quantifiable by the amount of the award without deduction of expenses. The gain is attributed to the period in which the judgment becomes final and is included in the general taxable base.

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