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V2736-19 8 October 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · pacto de no competencia poscontractual

30% reduction not applicable to post-contractual non-compete compensation

A company has requested clarification on whether financial compensation for a post-contractual non-compete agreement qualifies for the 30% reduction under Article 18.2 of the Personal Income Tax Act (LIRPF). The Directorate-General for Tax (DGT) has ruled that it is not applicable because there is no generation period exceeding two years.

The question raised

Whether the 30 percent reduction of Article 18.2 of Law 35/2006 is applicable to the compensation.

The DGT's ruling

Compensation for a non-compete agreement does not allow for the 30% reduction provided for in Article 18.2 of Law 35/2006. It is not considered that a generation period exceeding two years exists, as the indemnity arises upon the dismissal that activates the agreement. Furthermore, the duration of such agreements cannot exceed two years according to labor regulations.

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