Skip to content
Back to index
V3453-15 12 November 2015 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · condena en costas

Payment of legal costs does not trigger VAT or Income Tax withholding for the losing party

A query was raised regarding the application of VAT and Income Tax (IRPF) withholding on the payment of legal costs. The Directorate-General for Tax (DGT) has determined that the payment of a costs order constitutes compensation to the winning party rather than consideration for services provided to the losing party.

The question raised

Application of VAT and Personal Income Tax (IRPF) withholding in such cases.

The DGT's ruling

The payment of legal costs by the losing party constitutes compensation to the winning party; therefore, there is no transaction subject to VAT between them, and no invoice should be issued to the party ordered to pay. The lawyer must invoice their services to the winning party with the corresponding VAT. Furthermore, as this is not a payment of professional fees to the lawyer but rather compensation, the party ordered to pay is not required to withhold Personal Income Tax (IRPF).

Book your free first meeting