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V4664-16 3 November 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Severance pay may lose tax exemption if re-employed by the same or related company

A worker inquired whether their severance pay would retain its Income Tax (IRPF) exemption after receiving a job offer at an overseas plant owned by the same multinational. The Directorate General for Taxes (DGT) explains that a presumption exists that no real severance of employment has occurred if the individual returns to work for the same company or a related entity within the following three years.

The question raised

Tax treatment under Personal Income Tax (IRPF) of severance pay in the event of providing services at another plant of the company that dismissed the worker, located abroad. Existence of a real and effective severance of the worker's relationship with the company.

The DGT's ruling

The exemption of severance pay requires a real and effective severance of the worker's relationship with the company. It is presumed that such severance does not exist if, in the three years following the dismissal, the worker provides services again to the same company or to another linked entity. This presumption allows for evidence to the contrary to prove that the new relationship does not nullify the original severance.

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