Doctrine by topic · DGT Observatory

Compensatory Nature: 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

Settled doctrine High confidence 14 rulings · 2014–2023

Current position

Amounts received to compensate for damages, losses, or contractual breaches have a compensatory nature. As there is no consideration or exchange of reciprocal benefits, these revenues fall outside the scope of VAT (IVA). In Personal Income Tax (IRPF), depending on the case, they may be classified as income from employment or capital gains, while in Corporate Income Tax (IS), their treatment depends on their link to the corporate purpose.

The DGT maintains a consistent position in which the absence of consideration is identified as the key element to determine compensatory nature. Throughout the rulings, this criterion has been applied consistently in various scenarios: legal costs, earnest money for withdrawal, retention fees for accommodation reservations, and penalties for vacant spaces. No changes in doctrine are observed, but rather a uniform application of the concept to different taxable events.

Analysis based on 14 of 14 rulings with a stated position. Updated 26 September 2026.

Rulings on this topic

14
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
V0877-18 3 Apr 2018

Legal costs are recognised upon accrual and are not subject to VAT

SG de Impuestos sobre las Personas Jurídicas
costas judicialesdevengoimputación de ingresosnaturaleza indemnizatoriasujeción al impuesto LIS — Ley 27/2014 del Impuesto sobre Sociedades art. 10.3LIS — Ley 27/2014 del Impuesto sobre Sociedades art. 11.1
Affects CompanyExpat · Non-residentIndividual
V2825-17 2 Nov 2017

Invoice requirements for VAT deduction and effects of legal costs awards

SG de Impuestos sobre la Renta de las Personas Físicas
derecho a la deducciónfacturacondena en costasdocumento justificativonaturaleza indemnizatoria LIVA — Ley 37/1992 del IVA art. 97LIVA — Ley 37/1992 del IVA art. 164.Uno.3º
Affects CompanyExpat · Non-residentIndividual
V3353-16 15 Jul 2016

Compensation for private vehicle accidents taxed as employment income

SG de Impuestos sobre la Renta de las Personas Físicas
rendimientos del trabajorentas exentasretención a cuentanaturaleza indemnizatoriarelación laboral LIRPF — Ley 35/2006 del IRPF art. 7LIRPF — Ley 35/2006 del IRPF art. 17
Affects CompanyExpat · Non-residentIndividual
V3198-16 8 Jul 2016

Late payment charges and compensatory interest are exempt from VAT

SG de Impuestos sobre el Consumo
base imponiblecontraprestaciónintereses de demoranaturaleza indemnizatoriaacto de consumo LIVA — Ley 37/1992 del IVA art. 4.1LIVA — Ley 37/1992 del IVA art. 5.1.a
Affects CompanyExpat · Non-residentIndividual

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