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V5338-16 19 December 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · salarios de tramitación

40% tax reduction applicable to back pay received following a final court ruling

A query was raised regarding whether the 40% tax reduction could be applied to compensation and back pay following a judicial ruling. The Directorate General of Taxes (DGT) has ruled that such income is attributed to the year in which the judgment becomes final and, as it covers a period exceeding two years, the reduction is applicable.

The question raised

Application of the reduction provided for in Article 18.2.a) of the Personal Income Tax Law.

The DGT's ruling

Back pay salaries must be attributed to the tax period in which the judgment determining their amount becomes final. As these are remunerations not received for a period exceeding two years, the 40% reduction provided for in Article 18.2.a) of the Personal Income Tax Law (LIRPF) is applicable, subject to an annual limit of 300,000 euros.

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