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V1833-20 9 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · condena en costas

Legal costs and late payment interest may be considered capital losses for Income Tax purposes

A taxpayer has inquired whether being ordered to pay legal costs and statutory interest can be treated as a capital loss. The Directorate General of Taxes (DGT) has ruled that both concepts represent a change in the composition of assets, allowing them to be recorded as a loss.

The question raised

Consideration as a capital loss in Personal Income Tax regarding the award of legal costs and interest.

The DGT's ruling

The award of legal costs against the losing party constitutes a capital loss, as it is a compensation that affects their assets. Likewise, the legal interest derived from said award is also considered a capital loss, as it compensates for damages due to breach of contract and does not fall within the exclusions of Article 33.5 of the Personal Income Tax Law.

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