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V3161-14 26 November 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

40% tax reduction inapplicable to bonuses with a generation period of less than two years

A company inquired whether the fractional payment of a bonus based on 2012 objectives allows for the application of the 40% reduction in Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that it is not applicable because the generation period is less than two years.

The question raised

Application of the 40 percent reduction provided for in Article 18.2.a) of the Personal Income Tax Law to the portion of the bonus that the consulting entity must pay in 2014.

The DGT's ruling

To apply the 40% reduction on income from employment, such income must have a generation period exceeding two years and must not be periodic or recurring. The fact that payment is made in several installments does not alter the generation period. In this case, as the bonus is linked to objectives of a specific year, the generation period is less than two years and the reduction is not applicable.

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