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V2064-14 28 July 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Severance pay may lose tax exemption if services are resumed with the same company within three years

A worker inquired whether their severance pay would retain its Income Tax (IRPF) exemption after being rehired via a commercial contract by the same company shortly after dismissal. The Directorate General for Taxes (DGT) indicates that re-engagement within less than three years creates a presumption that no genuine termination of the employment relationship occurred.

The question raised

Tax treatment under Personal Income Tax (IRPF) of severance pay in the event of providing services to the company that dismissed the worker. Existence of a real and effective severance of the worker's relationship with the company.

The DGT's ruling

The exemption of severance pay requires a real and effective severance of the worker's relationship with the company. It is presumed that such severance does not exist if, in the three years following the dismissal, the worker provides services again to the same company or to an affiliated company, whether through an employment relationship or professional activity. This presumption allows for rebuttal to demonstrate that the new relationship does not nullify the original severance.

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