30% reduction for irregularity: requirements for mutual agreement settlements

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the tax treatment of amounts received by virtue of a mutual agreement contract termination. The central issue lies in determining whether these compensations can benefit from the 30% reduction provided for income that is notoriously irregular over time.

What the DGT has ruled

The body has determined that the compensation derived from a termination by mutual agreement is of the nature of employment income. Therefore, it is not considered compensation for unfair or objective dismissal, which prevents it from enjoying the corresponding exemption.

Regarding the application of the 30% reduction established in Article 18.2 of the Personal Income Tax Law (Ley del IRPF), the DGT points out that this benefit is only applicable when the income is imputed in a single tax period. If the amounts are received in installments over several years, the legal requirement necessary to apply said reduction is not met, as the income is not concentrated in a single fiscal year.

What this means for you

If you are a worker who has agreed to the termination of their contract and will receive financial compensation, you must take into account that the tax treatment will depend strictly on the method of payment and the nature of the concept. Since it is not a dismissal compensation, the entire amount will be taxed as employment income.

The main risk lies in the planning of the collection. If the agreement contemplates payments distributed across different fiscal years, you will lose the right to apply the 30% reduction for irregularity, which could increase the final tax burden on that income.

What should be done

It is necessary to analyze the structure of the termination agreement before its formalization. It must be verified whether the nature of the amount allows for an exemption or if, on the contrary, it is employment income subject to the irregularity regulations. Assessing the concentration of payments in a single fiscal year is a determining factor in determining the viability of the 30% reduction.