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V1659-24 8 July 2024 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos de actividades económicas

30% reduction for irregular income cannot be applied to COVID contract suspension compensation

A taxpayer inquired whether compensation received for damages resulting from the suspension of a public contract due to COVID-19 allows for the 30% reduction applicable to irregular income. The Directorate General for Taxes (DGT) ruled that this reduction is not applicable, as there is no generation period exceeding two years, nor does the payment constitute compensation for the cessation of economic activity.

The question raised

Application of the reduction provided in Article 32.1 of Law 35/2006 to the compensation.

The DGT's ruling

The 30% reduction provided in Article 32.1 of the Personal Income Tax Law (LIRPF) is not applicable to this compensation. First, the requirement of a generation period exceeding two years is not met, as the compensation covers expenses incurred between March and November 2020. Second, the compensation does not constitute income obtained in a notoriously irregular manner, as it does not derive from the cessation of economic activity, but rather from the suspension of a contractual relationship.

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