Victims of fraud may deduct the amount suffered in their Personal Income Tax (IRPF)

Victims of economic deception or fraud that result in a decrease in their assets face the doubt of whether they can apply said loss in their tax return. The Dirección General de Tributos (DGT) has recently clarified the tax treatment of these situations.

What the DGT has resolved

The advisory body has determined that the amount subject to a fraud constitutes a capital loss, given that it represents a negative variation in the value of the taxpayer's assets. However, the application of this loss in Personal Income Tax (IRPF) is conditioned on meeting strict requirements.

According to the issued criteria, for the loss to have tax implications, it cannot be considered an unjustified loss pursuant to article 33.5.a) of Law 35/2006. This implies that the taxpayer bears the burden of proof and must prove the existence of the fraud and the economic loss through evidence admitted under the Law. The Tax Administration will be responsible for assessing whether the documentation provided is sufficient to validate the loss.

What it means for you

If you have suffered economic harm due to deception, that money is not treated as a loss derived from the sale of an asset, but as a capital loss that is integrated into the general tax base of the tax. This means that the tax impact is calculated on the total of your earnings and not in the savings tax base.

What you should do

In a situation of this type, it is fundamental to collect all documentation that allows for the demonstration of the deception and the outflow of funds. The sufficiency of the evidence will be the determining factor for the Administration to accept the deduction. It is recommended to:

• Keep copies of complaints filed before police or judicial authorities.
• Maintain records of transfers or bank movements that demonstrate the harm.
• Have any communication or document that evidences the deception suffered.

Each fraud situation presents particularities that must be analyzed to determine the feasibility of its tax application.