The tax authorities have adopted the Supreme Court criterion and have recognized that interest on late payment accompanying undue income is not taxable.
The Treasury required that such interest be declared within the savings taxable base
The Tax Authorities have adopted the criterion of the Supreme Court and have recognized that late payment interest accompanying undue income is not taxable.
If a taxpayer rectifies a self-assessment of taxes and requests a refund of the undue income (or if the settlement resulting from a tax assessment results in an amount to be refunded), the Treasury must pay late payment interest to the taxpayer (3.75% in 2022); until recently, it considered that this interest was taxable income, so it had to be included in the personal income tax return (DGT CV 20-12-19 V3503-19).
Specifically, the Treasury required that such interest be declared within the savings taxable base (which, in 2022, is taxed at a tax rate of between 19% and 26%).
However, the Supreme Court ruled against this criterion, establishing that this interest is not subject to personal income tax (SC 3-12-20, EDJ 731790):
–The collection of interest does not mean any capital gain for the taxpayer, but rather a rebalancing that cancels the loss previously suffered by the taxpayer.
–Therefore, late payment interest has a compensatory purpose. If they are considered subject to personal income tax, this purpose is frustrated, since the compensation is reduced in the amount of tax to be paid.
Based on this ruling, the Tax Authorities have finally changed their criteria and in a recent consultation have recognized that this late payment interest is not taxable in Personal Income Tax (DGT CV 27-5-22 V1195-22).
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