Ruling of the Supreme Court: Deductibility of interest on late payment IRPF

Judicial pronouncement on personal income tax

On 24 July 2023, the Supreme Court issued a ruling that sheds light on the deductibility of late payment interest in Personal Income Tax (IRPF), specifically in the context of income from economic activities.

This judicial pronouncement, which extends the doctrine established in a previous ruling of February 2021 related to Corporate Income Tax, has significant implications for taxpayers and tax professionals.

The February 2021 ruling had laid the foundations by determining that interest on tax arrears was considered to be a tax-deductible expense for corporate income tax purposes.

Now, the Supreme Court extends this interpretative criterion to Personal Income Tax, specifically with regard to income from economic activities.

The High Court holds that late payment interest, being classified as financial expenses, can be deducted in personal income tax.

Interest on arrears as financial charges

This recognition implies that this interest not only represents a “penalty” for late payment of taxes, but also has a financial nature, putting it on a par with other traditional financial expenses.

The imposition of deductibility limits introduces an additional dimension. These limits, aimed at avoiding abuses and ensuring a reasonable deduction, will now also be applicable in the field of personal income tax. This implies that, although late payment interest is considered deductible, there is a regulatory framework that regulates the maximum amount that can be deducted in tax terms.

The Supreme Court ruling has direct implications for taxpayers who generate income from economic activities. Those who have incurred late payment interest can now benefit from a tax deduction, as long as they respect the limits established by current legislation.

Interpretation of the deductibility of interest for late payment in the field of personal income tax

The recent Supreme Court ruling marks a milestone in the interpretation of the deductibility of late-payment interest in the field of personal income tax. By extrapolating the doctrine previously established in Corporate Income Tax, the court provides clarity and consistency in the application of tax regulations.

However, taxpayers should be aware of the deduction limits to avoid possible tax contingencies. This court ruling underlines the importance of accurate and up-to-date tax planning, as court decisions can have a direct impact on taxpayers’ tax burden.

If you have any doubts regarding this issue, please do not hesitate to contact us, by telephone to Carles Monfort Codina or by e-mail to cmc@btsasociados.com, we will be delighted to help you.