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V2106-24 27 September 2024 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · costas judiciales

Payment of legal costs is not subject to VAT and can be claimed as an expense or loss for Income Tax purposes

A taxpayer inquired whether pro forma invoices for the winning party's legal fees can be used to deduct VAT and if they are deductible for Income Tax. The DGT ruled that the payment of legal costs constitutes compensation not subject to VAT, and that the expense or loss can be substantiated through evidence admissible under the law.

The question raised

Validity of pro forma invoices, corresponding to the fees of the lawyer and solicitor of the prevailing party, for the purposes of VAT deduction and deductibility in Personal Income Tax (IRPF).

The DGT's ruling

The payment of legal costs is compensation to the prevailing party and not consideration for services; therefore, there is no transaction subject to VAT, nor should an invoice be issued to the losing party. The lawyer must invoice their services to the prevailing party, who is the actual recipient. For Personal Income Tax (IRPF) purposes, the award constitutes an expense (if it is an economic activity under the direct estimation method) or a capital loss. Said expense or loss may be substantiated through the means of proof admitted under Law.

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