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V2050-20 23 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Exemption from severance pay upon termination of contract requires proof of grounds under Article 50 of the Workers' Statute

A query was raised regarding whether severance pay received due to the termination of an employment relationship at the worker's request is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) indicates that to apply the exemption, the specific grounds motivating such termination must be proven.

The question raised

It is inquired whether the amount received due to the termination of the employment relationship is exempt from Personal Income Tax (IRPF) pursuant to the provisions of Article 7 e) of the Tax Law.

The DGT's ruling

Severance pay for the termination of the employment relationship constitutes income from employment. For it to be exempt under Article 7 e) of the Personal Income Tax Law (LIRPF), the grounds for termination must be substantiated in accordance with Article 50 of the Workers' Statute. The Tax Administration has the authority to assess the evidence provided for such substantiation.

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