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V2539-20 27 July 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Exemption from redundancy pay may be lost if the employee is rehired within three years

A company sought clarification on whether the tax exemption on redundancy pay remains valid if a dismissed employee is rehired two years later. The Directorate General for Taxes (DGT) ruled that rehiring within three years creates a presumption that no genuine termination of employment occurred, which could invalidate the exemption.

The question raised

Tax treatment under Personal Income Tax (IRPF) of severance pay in the scenario presented. Obligations of the company. Withholdings on account of Personal Income Tax (IRPF).

The DGT's ruling

The exemption of severance pay is conditional upon the real and effective termination of the employment relationship. It is presumed that no termination has occurred if the worker resumes providing services to the same company or to an affiliated company within three years following the dismissal. If the effective termination is not proven, the amount must be taxed under Personal Income Tax (IRPF). It is not appropriate to apply withholding tax on the severance pay if, at the time of payment, it cannot be derived that there was no termination of the employment relationship.

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