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V2300-14 8 September 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Exemption from redundancy pay is calculated based on legal years of service, not seniority agreements

A worker inquired about how to calculate their seniority and which salary to apply when determining the exempt portion of their redundancy pay following a collective dismissal. The Directorate-General for Life and Labour Insurance (DGT) ruled that the exemption depends on the mandatory amount set by the Workers' Statute and the actual years of service provided.

The question raised

1) Calculation of the employee's seniority in the company, for the purposes of the provisions of Article 7.e) of the Personal Income Tax Law. 2) Determination of the salary for the purposes of calculating the severance payment, including certain incentive concepts and gratifications.

The DGT's ruling

The exemption in Personal Income Tax (IRPF) applies to the amount mandatorily established by the Workers' Statute, excluding amounts agreed upon by collective bargaining agreement or contract. The number of years of service for the exempt calculation is that which would be applicable in the absence of an agreement, based on the work performed. In the case of corporate groups acting as a single employer, the years of service provided within the group must be considered. The determination of seniority and the salary components for the severance payment is subject to labor regulations.

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