Deductibility of capital losses in donations: Judgment of the SC 2024

Sentencia del Tribunal Supremo de 12 de abril de 2024

The Supreme Court, in its ruling of 12 April 2024 (appeal 8830/2022), reaffirms the current administrative practice and denies personal income taxpayers the possibility of deducting capital losses derived from inter vivos transfers, such as donations.

This decision creates an asymmetrical tax treatment, as it prohibits the deduction of capital losses but obliges taxpayers to declare the gains obtained in this type of transfer.

Supreme Court case law on the deductibility of capital losses

In the aforementioned ruling, the Supreme Court establishes as case law that, for personal income tax purposes, capital losses arising from inter vivos transfers (i.e. donations) are not deductible:

“(…) in interpretation of article 33.5.c of Law 35/2006, of 28 November, on Personal Income Tax, it is not appropriate to compute, for the purposes of this tax, capital losses due to lucrative transfers by inter vivos acts or donations, even if, in the same act, capital gains also declared, derived from the same type of transfers, are computed”.

The Supreme Court holds that article 33.5.c of the Personal Income Tax Law eliminates the possibility of taxpayers including in their tax returns losses derived from acts that depend exclusively on their will, thus avoiding tax avoidance mechanisms.

Historical and literal context of the Personal Income Tax Law

It is important to point out that since Law 18/1991 on Personal Income Tax, the reference to the calculation of decreases in wealth due to differences in value in lucrative transfers has been eliminated. Moreover, the current text of the Personal Income Tax Act clearly states that these losses are not deductible:

“The following shall not be computed as capital losses: (…) c) Those due to lucrative transfers by inter vivos acts or liberalities.”

This interpretation reinforces the position of the Supreme Court and maintains the coherence of the current regulatory framework for Personal Income Tax.

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