Legal expenses have been paid in one year, which have been deducted as expenses in the determination of net work performance in the income tax return for that year. However, the litigation in respect of which those expenses are incurred is presumed to end in a subsequent financial year and, consequently, additional expenses will be incurred and paid in that year.
Legal defence expenses
The regulation of expenses deductible from full labour income is included in Article 19.2 of Law 35/2006, of 28 November, on Personal Income Tax and the partial amendment of the laws on Corporation Taxes, Non-Resident Income and on Equity (BOE of 29th), hereinafter LIRPF, pursuant to which:
“2. Only the following shall be considered deductible expenses:
a) Contributions to social security contributions or compulsory general mutual insurance funds for civil servants.
b) Drawdowns for passive rights.
c) Contributions to schools for orphans or similar entities.
d) The fees paid to trade unions and professional associations, when membership is compulsory, in the part corresponding to the essential purposes of these institutions, and within the limits established by regulation.
e) Legal expenses arising directly from litigation arising from the taxpayer's relationship with the person from whom the income is received, up to a limit of 300 euros per year.
(f) For expenditure other than the above, EUR 2,000 per annum.
With regard to the temporary imputation of these expenses, their consideration as deductibles of the full income from work leads us to the general imputation rule established in Article 14.1 of the Tax Law:
Income and expenses that determine the income to be included in the tax base shall be credited to the corresponding tax period, in accordance with the following criteria:
a) Income from work and capital shall be charged to the tax period in which it is due from the recipient.
Concept of Legal Defence
Regarding what is meant by legal defence, this Management Centre considers that this concept is delimited around the intervention of legal professionals who defend the interests of the taxpayer (perceiver of income from work) in disagreements or disagreements that may have with the person from whom the income is received. Therefore, only the fees of these professionals will be those considered included in this concept of expenditure and always within the limit of 300 euros per year.
In accordance with this legislative configuration, legal expenses incurred in the legal defence of legal proceedings initiated in one year and completed in another, must be charged to the taxable period for which they are due, up to a limit of 300 euros per annum, irrespective of the temporary allocation that may correspond to the revenue claimed.
Consequently, in the income tax return for 2017 or subsequent years, the taxpayer may deduct the amount of legal expenses payable in the year corresponding to that return, even if they arise from litigation initiated in a previous year, up to a limit of 300 euros per year.