Doctrine by topic · DGT Observatory

Defense Expenses: 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 10 rulings · 2019–2025

Current position

The award of legal costs is compensatory in nature and constitutes a capital gain. To determine said gain, the prevailing party may deduct from the amount received the expenses incurred due to the litigation, up to a maximum limit equal to the amount received. If the amount of the award coincides with the expenses incurred, no capital gain occurs.

The DGT's position has evolved from considering the award as a pure capital gain toward allowing the deduction of defense expenses to determine the actual result. Initially, the focus was on the nature of the amount, whereas more recent rulings consolidate the possibility of reducing the amount received by the litigation expenses to avoid a fictitious gain.

Turning points

  1. V1397-21

    Introduces the possibility of deducting from the amount received the expenses incurred due to the litigation to determine the capital gain.

  2. V2908-21

    Establishes that, in cases of insurance claim compensation, defense expenses cannot reduce the capital gain, marking a distinction from the award of legal costs.

Analysis based on 10 of 10 rulings with a stated position. Updated 28 September 2026.

Rulings on this topic

10
V1162-25 1 Jul 2025

Judicial costs won are tax-exempt if defence expenses are deducted

SG de Impuestos sobre la Renta de las Personas Físicas
condena en costasganancia patrimonialcarácter restitutoriogastos de defensaindemnización LIRPF — Ley 35/2006 del IRPF art. 33.1LIRPF — Ley 35/2006 del IRPF art. 34.1.b
Affects CompanyExpat · Non-residentIndividual
V0992-21 20 Apr 2021

Inability to deduct VAT from pro forma invoices or legal costs

SG de Impuestos sobre la Renta de las Personas Físicas
deducción de cuotafactura proformacostas judicialesnaturaleza indemnizatoriadocumento justificativo LIVA — Ley 37/1992 del IVA art. 97LIVA — Ley 37/1992 del IVA art. 164.Uno.3º
Affects CompanyExpat · Non-residentIndividual
V3228-19 25 Nov 2019

Legal costs award constitutes a capital gain for the beneficiary

SG de Impuestos sobre la Renta de las Personas Físicas
condena en costasganancia patrimonialindemnizacióngastos de defensadeducción por vivienda habitual LIRPF — Ley 35/2006 del IRPF art. 33.1LIRPF — Ley 35/2006 del IRPF art. 34.1.b
Affects CompanyExpat · Non-residentIndividual
V1545-19 24 Jun 2019

Legal costs award treated as capital gain rather than professional income

SG de Impuestos sobre la Renta de las Personas Físicas
condena en costasganancia patrimonialindemnizaciónrendimientos profesionalesgastos de defensa LIRPF — Ley 35/2006 del IRPF art. 33.1LIRPF — Ley 35/2006 del IRPF art. 34.1.b
Affects CompanyExpat · Non-residentIndividual

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