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V2643-14 7 October 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IVA · costas judiciales

Legal costs are exempt from VAT due to their compensatory nature; IS treatment for unions depends on whether they constitute economic activity

A lawyer has requested clarification on whether legal costs for fees are subject to VAT and how they are taxed for a trade union. The DGT clarifies that legal costs are compensatory in nature and thus exempt from VAT. Regarding Corporate Income Tax, the treatment for the union depends on whether the activity falls within its corporate purpose or constitutes an economic activity.

The question raised

1) Given that the award of legal costs is compensatory in nature, when the party I represent is either the trade union or an affiliated person, whether it would be possible to request the assessment of costs for the legal fees item in favor of and on behalf of the trade union, and not in its own favor as the lawyer who intervened in the proceedings.

The DGT's ruling

The payment of legal costs is compensation and not a consideration; therefore, it is not subject to VAT and does not require an invoice. For a trade union, such income shall be exempt from Corporate Income Tax if it arises from its corporate purpose and not from economic activity. If considered economic activity, it shall be subject to tax at a rate of 25%.

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