The Supreme Court ruling of 25 July 2023, appeal 2334/2021 establishes a favourable criterion for taxpayers in relation to the tax treatment of remuneration and indemnities received by directors and senior executives in Personal Income Tax (IRPF).

The Supreme Court has confirmed that severance payments to senior executives are exempt from personal income tax under Article 7.e) of the Personal Income Tax Act.

The severance payment is protected as a security measure against involuntary loss of employment, regardless of the business relationship.

On the other hand, remuneration and indemnities received by directors, which are considered to be earned income, are eligible for the 30% reduction for irregular income established in the Personal Income Tax Act, provided that they have been generated over a period of more than two years.

In any case, the legal situation should be analysed in order to be able to apply for a refund of undue income in your personal income tax, if applicable, for those situations that have arisen in previous years.

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