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V2824-14 20 October 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · base imponible

Payment of a client's penalty assumed by a consultancy firm is not tax-deductible

A tax consultancy firm has inquired whether it can deduct the payment of a client's Personal Income Tax (IRPF) penalty as a business expense. The Directorate General for Taxes (DGT) has ruled that it is not deductible because the payment does not arise from a contractual liability, but rather from a corporate decision.

The question raised

Whether the penalty imposed on the client, the amount of which was assumed by the company that advised them, is deductible for the purpose of determining the taxable base of the latter's Corporate Income Tax.

The DGT's ruling

The payment of client penalties assumed by the company is only deductible if it has a contractual nature, arising from the breach of obligations agreed upon with third parties. In this case, by assuming the penalty following legal advice without the existence of a prior contractual liability, the expense is not deductible as it constitutes a gratuity and a penalty, pursuant to Article 14.1 c) and e) of the TRLIS.

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