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Penalty Clause: DGT doctrinal evolution

How the DGT's position on this topic has evolved, and the rulings it rests on.

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How the DGT's position has evolved

Refined position High confidence 13 rulings · 2014–2024

Current position

The nature of the penalty clause depends on its purpose: if it is coercive to ensure compliance, it is considered part of the consideration and reduces the VAT (IVA) taxable base. If it is compensatory due to the termination of a contract, it is not subject to the tax. Payments made to waive legal actions are considered a provision of services subject to VAT.

The DGT has maintained a distinction between a penalty as a price reduction (coercive purpose) and a penalty as compensation for termination. While in 2014 it was considered not subject to tax because it was not consideration, subsequent doctrine has specified that coercive penalties are part of the taxable base as a lower value of the service. Ruling V1628-24 once again distinguishes the compensatory nature in cases of termination of a sale and purchase agreement.

Turning points

  1. V0153-20

    Establishes that penalties with a coercive purpose are not exempt compensations, but rather form an inseparable part of the service and reduce the taxable base.

  2. V1628-24

    Specifies that in the termination of a sale and purchase agreement, the penalty clause is compensatory in nature and is not subject to tax, but the waiver of legal actions is a provision subject to VAT.

Analysis based on 12 of 13 rulings with a stated position. Updated 27 September 2026.

Rulings on this topic

13
V2172-20 29 Jun 2020

Contract rescission triggers capital gains tax under penalty clause

SG de Impuestos sobre la Renta de las Personas Físicas
resolución contractualcláusula penalganancia patrimonialefecto retroactivopacto comisorio LIRPF — Ley 35/2006 del IRPF art. 14.2.aLIRPF — Ley 35/2006 del IRPF art. 33.1
Affects CompanyExpat · Non-residentIndividual
V3014-14 5 Nov 2014

Early termination fees in telephony contracts are not subject to VAT

SG de Impuestos sobre el Consumo
base imponiblecontraprestaciónindemnizacióncláusula penalincumplimiento contractual LIVA — Ley 37/1992 del IVA art. 78LGT — Ley 58/2003 General Tributaria art. 89.1
Affects CompanyExpat · Non-residentIndividual

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