BackThe binding consultation of the General Directorate of Taxes (V1227-23) dated May 10, 2023, analyzes the taxation in Personal Income Tax (IRPF) of a salary reduction unilaterally imposed by a company and subsequently annulled by a final court ruling, when the company subsequently pays the corresponding arrears and interest.
The earnings that the individual receives in this circumstance are clearly considered as earned income, an assumption assumed by the governing body and used as a basis for determining the time of their inclusion in the IRPF. In this sense, it relies on Article 14 of the LIRPF, which establishes that, in general terms, this income will be assigned “to the tax period in which it is receivable by the beneficiary”. However, this same article also includes specific rules for the temporary allocation in its second paragraph, where point a) states the following:
If part or all of an income has not been satisfied due to the judicial pendency to determine its right of collection or its amount, the unpaid amounts will be assigned to the tax period in which the judicial decision becomes final”.
Specifically in the case addressed by the consultation, both the final judgment and the payment of arrears and interest occurred in the year 2022. Therefore, the temporary allocation will be made to the tax period in which the judicial decision that determined the right to receive those payments became final, that is, in the tax year 2022.
Having clarified how the income obtained is temporarily distributed, the General Directorate of Taxes explores the feasibility of applying the 30% reduction established in article 18.2 of the LIRPF, which establishes the following:
A 30% reduction will be applied in the case of full income other than those provided for in Article 17.2.a) of this Law, which have a generation period of more than two years, and also those that are considered to be obtained in a notably irregular manner over time in accordance with the regulations, provided that, in both cases, they are imputed in a single tax period.
In the case of income derived from the termination of an employment relationship, whether common or special, the period of generation shall be considered to be the employee’s time of service. In the event that this income is received in installments, the computation of the generation period shall take into account the number of years of installments, following the regulatory provisions. This income shall not be taken into consideration for the purposes set forth in the following paragraph.
However, this reduction shall not be applicable to income whose generation period is longer than two years if, in the five tax periods prior to the one in which it becomes due, the taxpayer has received other income with a generation period longer than two years, to which the reduction mentioned in this section has been applied”.
In this instance, the income cannot be considered as obtained in a particularly irregular manner over time, given that it does not comply with any of the scenarios defined in article 12 of the Personal Income Tax Regulation (RIRPF). Therefore, according to the consultation, “the reduction would only be feasible if there is a generation period of more than two years”, which is verified in this case as the delays resulting from the ruling cover a period of more than two years. Consequently, it is concluded that the 30% reduction will be applied in accordance with article 18.2 of Law 35/2006.
However, the General Directorate of Taxes clarifies that the interest derived from the sentence is not considered as work income subject to this reduction, since it is taxed in the Personal Income Tax as capital gains, in accordance with articles 33 and following of the Personal Income Tax Law.
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