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V3291-17 27 December 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Severance pay may lose tax exemption if a professional relationship with the company is maintained

A worker who continues to provide professional services to the same company after being unfairly dismissed has enquired whether their severance pay remains exempt from Income Tax (IRPF). The Directorate General of Taxes (DGT) indicates that the exemption requires a real and effective severance of ties with the company.

The question raised

Issue raised: Tax treatment under Personal Income Tax (IRPF) of severance pay, in the event of continuing to provide services to the same company that dismissed them, through a professional relationship.

The DGT's ruling

The exemption of severance pay is conditional upon the actual and effective termination of the worker's relationship with the company. It is presumed that such termination does not exist if the worker resumes providing services to the same company or to an affiliated company within the following three years. For this purpose, it is irrelevant whether the new relationship is an employment relationship or a professional activity. Notwithstanding, this presumption admits evidence to the contrary to prove that the termination did indeed occur.

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