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V1545-19 24 June 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · condena en costas

Legal costs award treated as capital gain rather than professional income

A taxpayer inquired about the tax treatment of legal costs awarded following a successful lawsuit against a bank. The DGT ruled that the recovery of these costs constitutes a capital gain due to its compensatory nature, rather than professional income.

The question raised

Issue raised: Taxation of the award of legal costs.

The DGT's ruling

The award of legal costs creates a credit in favor of the prevailing party; therefore, the payment from the losing party constitutes compensation and not professional income. This constitutes a capital gain pursuant to Article 33.1 of Law 35/2006, quantified by the amount of the award. If the transitional regime for the deduction for the primary residence applies, these expenses may be included as expenses derived from third-party financing.

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