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V3147-17 5 December 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancias y pérdidas patrimoniales

Tax treatment of compensation for damage to assets and loss of profits

A taxpayer inquires about the taxation of compensation received for damages to a leased industrial facility and for loss of profits. The DGT determines that the former constitutes a capital gain or loss, while the latter is classified as income from economic activities.

The question raised

Taxation in the Personal Income Tax (IRPF).

The DGT's ruling

Compensation for damages to assets is classified as a capital gain or loss, calculated as the difference between the amount received and the proportional part of the acquisition value corresponding to the damage. Compensation for loss of profits, by compensating for net income from an economic activity not received, is classified as income from economic activities. Expenses incurred to obtain the arbitral award are deductible from the activity. The reduction for irregular income or for a generation period exceeding two years is not applicable in this case.

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