The recent Supreme Court ruling no. 1091/2023, dated July 24, establishes that, in the field of Personal Income Tax (IRPF), late payment interest related to the taxpayer’s economic activities, whether derived from income verification settlements or suspensions of contested administrative acts, are considered tax-deductible expenses. This interest, classified as financial expenses, is subject to the deductibility limits stipulated in Article 16 of the Corporate Income Tax Law, which also apply to personal income tax.
Prior to this decision, the Chamber had not addressed the deduction of late payment interest in the determination of income from economic activities in Personal Income Tax. However, it had already resolved a similar issue in the context of Corporate Income Tax. Through judgment no. 150/2021, dated February 8, it was established that both late payment interest arising from administrative liquidations derived from verification processes and suspensive interest are deductible expenses in the Corporate Income Tax.
Through the ruling issued in July 2023, the Supreme Court extends the treatment of late payment interest to cases in which the taxpayer carries out an economic activity within the Personal Income Tax (IRPF).
The ruling emphasizes that tax late payment interest does not have a punitive purpose, but rather compensates for the delay in the payment of the tax debt. This interest is considered to be a financial expense and, if the legal requirements are met, such as justification and accounting records, its deductibility should not be questioned. In addition, the ruling argues that Article 28.1 of the Personal Income Tax Law refers to the rules of the Corporate Income Tax (IS), which creates an express connection between both laws.
The ruling analyzes whether financial expenses can fall into the categories of non-deductibility according to article 15 of the Corporate Income Tax Law. Since late payment interest is linked to the exercise of the economic activity and is connected to income, the ruling concludes that it is deductible for determining the net income of such activity.
Therefore, the ruling establishes that, since tax late payment interest arising from article 26 of the LGT has the nature of financial expenses, they do not fit into the categories of non-deductibility according to article 15 of the LIS, which makes them tax deductible, thus setting the interpretative criterion mentioned above.
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