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How winning a lawsuit before the courts affects personal income tax

by May 31, 2023tax consultancy0 comments

According to Gestha, the Treasury technicians remind us that the amount of the costs must be included in the general taxable base of the Personal Income Tax.

Any citizen to whom a court decision recognizes the payment of costs, either for winning the lawsuit or for procedural recklessness of the opposing party, will have to include the amount of the costs in the general taxable base of the IRPF, increasing the progressivity of the tax burden in relation to the annual income from any source, because it will have the qualification of “capital gain”.
A recent binding consultation of the Directorate General of Taxes indicates that the lawyer and attorney fees incurred during the process will not be deductible either, because they are classified as “expenses due to consumption”, a position that eliminates the compensatory nature of the legal costs for the necessary expenses incurred by the winner of a lawsuit for the defense of the case before the courts. Another thing would be that the excess of the costs that exceed the legal expenses actually incurred would be subject to taxation.
The omission of the amount of the costs in the taxable base may result in the claim of the unpaid taxes, late payment interest and the imposition of a minimum penalty of 50% of the discovered tax, which in the case of conformity would be a penalty of 26.25%”.
Gestha sources point out that around 1.5 million sentences are issued annually, plus some 150,000 resolutions against the Administration declaring costs in the first instance.
Once again, the Tax Agency has designed a mechanism, more than debatable, to pursue the tax collection from the most harmed, victims of the hybrid product financial schemes allowed by the financial system, who were not only deceived, swindled and vilified, but at the end of long judicial processes the tax toll is waiting for them to give them the final nail in the coffin.
It is a good thing that the tax collection spirit of “hacienda somos todos” is nothing more than an advertising slogan.


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