Timing of taxation for back pay resulting from collective agreements

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the classification and timing of taxation for economic compensation derived from collective agreements, specifically when these arise from delays in wage payments.

What the DGT has ruled

The advisory body establishes that the compensation stipulated in a collective agreement constitutes employment income. The key to the ruling lies in the distinction between the date the income became due and the date of its actual collection.

• Wages due prior to the agreement: These are considered back pay due to justified circumstances not attributable to the employee. They must be taxed in the tax year in which they were originally due, which requires the filing of a supplementary tax return.
• Wages due after the agreement: These will be attributed to the tax year in which they become due according to the new deadlines agreed upon in the agreement.

Furthermore, the DGT specifies that, in the case of back pay, a withholding tax rate of 15 percent shall apply.

What this means for you

This ruling has a direct impact depending on the taxpayer's profile:

• Employees: If you receive payments corresponding to previous tax years due to a collective agreement, the tax obligation arises at the time those wages should have been received, not when they are actually received.
• Expatriates: If a worker received wages while they were a tax resident in Spain, but the payment is made after losing said residency, they must file the corresponding supplementary tax return in Spanish territory.
• Companies: The entity must manage the payment of postponed wages, ensuring the application of the correct withholding rates based on when the income became due.

What you should do

Upon receiving payments for back pay, it is necessary to verify the original due date of said income to determine whether it is necessary to file a supplementary Personal Income Tax (IRPF) return. It is recommended to analyze the particular situation of each case to ensure compliance with the regulations of Law 35/2006 on Personal Income Tax (LIRPF) and the IRPF Regulations.