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Practical manual for Income Tax 2024. Volume 1

Example: calculation of late payment interest for improper deductions

Mr. RIT To purchase a newly built off-plan home, on November 28, 2012, he signed a private sales contract with the developer "ZZ" in which the following payment schedule was established: An initial payment of 9,000 euros on the date of signing the private contract and 3 annual payments of 6,000 euros, the last due on November 5, 2015, and the remaining 173,000 euros upon delivery of the property in October 2016 by means of a mortgage loan.

Notwithstanding the above, due to exceptional circumstances not attributable to the taxpayer, the works were halted and Mr. RIT proceeded  to request from the Tax Authority a four-year extension of the deadline for completion of the works. This extension was granted for five more years, which is why in 2016, 2017, 2018, 2019 and 2020 he did not deliver any amount or make any practical deduction.

Once the works were completed in 2021, the public deed of sale was signed on October 14, 2021, and in November of that year, Mr. RIT moved into the building. However, for economic reasons, on February 1, 2024, he rented it out, failing to comply with the requirement that said property constitute his residence for a continuous period of at least three years and, consequently, losing the right to the deductions applied.

The amounts invested and the deductions made were:

Year

Amounts invested

Deductions made
2012 9,000 euros 1,350 euros (15%)
2013 6,000 euros 900 euros (15%)
2014 6,000 euros 900 euros (15%)
2015 6,000 euros 900 euros (15%)
2016 0 0
2017 0 0
2018 0 0
2019 0 0
2020 0 0
2021 9.040 euros 1,356 euros (15%)
2022 9.040 euros 1,356 euros (15%)
2023 9.040 euros 1,356 euros (15%)
2024 9.040 euros 1,356 euros (15%)

By what amount should the state and regional net tax be increased for the 2024 tax return if said return is filed and paid on June 30, 2025, and, in relation to the tax returns in which the deduction was applied, the one for the 2012 tax year was due for a refund and said refund occurred on November 29, 2013, while the tax returns for the 2013, 2014, 2015, 2019, 2020, 2021, 2022, and 2023 tax years were positive?

Solution:

1. Amount of undue deductions

The taxpayer has failed to comply with the requirement that the home constitute his or her habitual residence for a continuous period of at least three years.

Therefore, the amount of the deductions that must be reimbursed is:

  • Deduction made in the 2012 declaration: 1,350.00

  • Deduction made in the 2013 declaration: 900,00

  • Deduction made in the 2014 declaration: 900,00

  • Deduction made in the 2015 declaration: 900,00

  • Deduction made in the 2016 declaration: 0.00

  • Deduction made in the 2017 declaration: 0.00

  • Deduction made in the 2018 declaration: 0.00

  • Deduction made in the 2019 declaration: 0.00

  • Deduction made in the 2020 declaration: 0.00

  • Deduction made in the 2021 declaration: 1,356.00

  • Deduction made in the 2022 declaration: 1,356.00

  • Deduction made in the 2023 declaration: 1,356.00

  • Total 8,118.00

Of the total undue deductions:

  • The sum of the amounts of the deductions made in the declarations of 2012, 2013, 2014, 2015, 2021, 2022 and 2023 corresponding to the state section (50% s/8,118.00 = 4,059.00) will increase the state net quota,

  • The sum of the amounts of the deductions made in the 2012, 2013, 2014, 2015, 2021, 2022 and 2023 tax returns corresponding to the regional tax bracket (50% of 8,118.00 = 4,059.00) will increase the regional net tax.

To these amounts the corresponding late payment interest must be added, calculated separately for the amounts deducted in each of the financial years.

2. Amount of late payment interest

Warning : p For the calculation of late payment interest for the period from 01-01-25 to 30-06-25, 4.0625 percent has been applied, which is the late payment interest rate that will be in effect until the General State Budget Law for 2025 is approved and comes into force, which has not yet occurred at the closing date of this Manual.

2.1 Late payment interest corresponding to the undue deduction of 2012 (1,350 euros)

a. Initial period: from 11-30-13 to 12-31-13 (32 days)

It is the period between the day after the date on which the return was made, which was November 30, 2013, and the last day of that year. The default interest rate in force on that date was 5 percent:

  • Late payment interest: (1,350 x 5 ÷ 100) x 32 ÷ 365 = 5.92

b. Intermediate period: from 01-01-14 to 31-12-24 (4,018 days)

It is the period between January 1, 2014 and December 31, 2024. The default interest rate in force in 2014 was 5 percent, in 2015 it was 4.375 percent, in 2016, 2017, 2018, 2019, 2020, 2021 and 2022 it was 3.750 percent, and in 2023 and 2024, it was 4.0625 percent. Therefore:

  • Late payment interest for the year 2014: (1,350 x 5 ÷100) = 67.50
  • Late payment interest for the year 2015: (1,350 x 4.375 ÷ 100) = 59.06
  • Late payment interest for the year 2016: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2017: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2018: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2019: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2020: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2021: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2022: (1,350 x 3.75 ÷ 100) = 50.63
  • Late payment interest for the year 2023: (1,350 x 4.0625 ÷ 100) = 54.84
  • Late payment interest for the year 2024: (1,350 x 4.0625 ÷ 100) = 54.84

  • Total (67.50+59.06+50.63+50.63+50.63+50.63+50.63+50.63 +50.63+54.84+54.84 ) = 590.65

c. Final period: from 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The default interest rate in effect in 2025, until the General State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (1,350 x 4.0625 ÷ 100) x 181 ÷ 365 = 27.20

d. Total late payment interest corresponding to the deduction for the 2012 financial year.

Total late payment interest: 5.92 + 590.65 + 27.20 = 623.77 euros

2.2. Late payment interest corresponding to the undue deduction of 2013 (900 euros)

a. Initial period : from 01-07-14 to 31-12-14 (184 days)

It is the period between the day after the due date for filing tax returns for the 2013 fiscal year, which was June 30, 2014, and the last day of that year. The interest rate in force during this period was 5%.

  • Late payment interest: [(900 x 5 ÷ 100) x 184 ÷ 365] = 22.68

b. Intermediate period : from 01-01-15 to 31-12-24 (3,653 days)

It is the period between January 1, 2015 and December 31, 2024. The default interest rate in force in 2015 was 4.375 percent, and in 2016, 2017, 2018, 2019, 2020, 2021, 2022 it was 3.75 percent, and in 2023 and 2024 it was 4.0625 percent. Therefore:

  • Late payment interest for the year 2015: (900 x 4.375 ÷ 100) = 39.38
  • Late payment interest for the year 2016: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2017: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2018: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2019: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2020: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2021: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2022: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2023: (900 x 4.0625 ÷ 100) = 36.56
  • Late payment interest for the year 2024: (900 x 4.0625 ÷ 100) = 36.56

  • Total (39.38 + 33.75 +33.75 + 33.75 + 33.75 + 33.75 + 33.75 + 36.56 + 36.56) = 348.75

c. Final period : from 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The default interest rate in effect in 2025, until the General State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (900 x 4.0625 ÷ 100) x 181 ÷ 365 = 18.13

Total late payment interest corresponding to the deduction for the year 2013 .

Total late payment interest: 22.68 + 348.75 + 18.13 =389.56 euros

2.3 Late payment interest corresponding to the undue deduction of 2014 (900 euros)

a. Initial period : from 01-07-15 to 31-12-15 (184 days)

It is the period between the day after the due date for filing tax returns for the 2014 fiscal year, which was June 30, 2015, and the last day of that year. The interest rate in force during this period was 4.375 percent.

  • Late payment interest: [(900 x 4.375 ÷ 100) x 184 ÷ 365] = 19.85

b. Intermediate period : from 01-01-16 to 31-12-24 (3,288 days)

It is the period between January 1, 2016 and December 31, 2024. The default interest rate in force in 2016, 2017, 2018, 2019, 2020, 2021, and 2022 was 3.750 percent, and in 2023 and 2024, 4.0625 percent. Therefore:

  • Late payment interest for the year 2016: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2017: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2018: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2019: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2020: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2021: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2022: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2023: (900 x 4.0625 ÷ 100) = 36.56
  • Late payment interest for the year 2024: (900 x 4.0625 ÷ 100) = 36.56

  • Total (33.75 + 33.75 +33.75 + 33.75 + 33.75 + 33.75 + 33.75 + 36.56 + 36.56) = 309.37

c. Final period : 01-01-25 to 30-06-25 (181 days)

It is the period between January 1, 2025, and the day of filing the personal income tax return for the 2024 fiscal year, in this case, June 30, 2025. The default interest rate in effect in 2025, until the General State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (900 x 4.0625 ÷ 100) x 181 ÷ 365 = 18.13

d. Total late payment interest corresponding to the deduction for the 2014 financial year.

Total late payment interest: 19.85 + 309.37 + 18.13 = 347.35 euros

2.4 Late payment interest corresponding to the undue deduction of 2015 (900 euros)

a. Initial period : from 01-07-16 to 31-12-16 (184 days)

It is the period between the day after the due date for filing tax returns for the 2015 fiscal year, which was June 30, 2016, and December 31, 2016. The late payment interest rate in force in 2016 was 3.750 percent. Therefore:

Late payment interest for the year 2016: [(900 x 3.75 ÷ 100) x 184 ÷ 366] = 16.97

b. Intermediate period : from 01-01-17 to 31-12-24 (2,922 days)

It is the period between January 1, 2017 and December 31, 2024. The default interest rate in effect in 2017, 2018, 2019, 2020, 2021, and 2022 was 3.750 percent, and in 2023 and 2024, 4.0625 percent. Therefore:

  • Late payment interest for the year 2017: (900 x 3.75 ÷ 100) = 33.75
  • Late payment interest for the year 2018: (900 x 3.75 ÷100) = 33.75
  • Late payment interest for the year 2019: (900 x 3.75 ÷100) = 33.75
  • Late payment interest for the year 2020: (900 x 3.75 ÷100) = 33.75
  • Late payment interest for the year 2021: (900 x 3.75 ÷100) = 33.75
  • Late payment interest for the year 2022: (900 x 3.75 ÷100) = 33.75
  • Late payment interest for the year 2023: (900 x 4.0625 ÷ 100) = 36.56
  • Late payment interest for the year 2024: (900 x 4.0625 ÷ 100) = 36.56

  • Total (33.75 + 33.75 +33.75 + 33.75 + 33.75 + 33.75 + 36.56 + 36.56 ) = 275.62

c. Final period : 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The default interest rate in effect in 2025, until the General State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (900 x 4.0625 ÷ 100) x 181 ÷ 365 = 18.13

d. Total late payment interest corresponding to the deduction for the 2015 financial year.

Total late payment interest: 16.97 + 275.62 + 18.13 = 310.72 euros

2.5 Late payment interest corresponding to the undue deduction of 2016 (no deduction was made)

There is no deduction and therefore there is no undue deduction or late payment interest.

2.6 Late payment interest corresponding to the undue deduction of 2017 (no deduction was made)

There is no deduction and therefore there is no undue deduction or late payment interest.

2.7 Late payment interest corresponding to the undue deduction of 2018 (no deduction was made)

There is no deduction and therefore there is no undue deduction or late payment interest.

2.8 Late payment interest corresponding to the undue deduction of 2019 (no deduction was made)

There is no deduction and therefore there is no undue deduction or late payment interest.

2.9 Late payment interest corresponding to the undue deduction in 2020 (no deduction was made)

There is no deduction and therefore no undue deduction or late payment interest.

2.10 Late payment interest corresponding to the undue deduction for 2021 (1,356 euros)

a. Initial period : from 01-07-22 to 31-12-22 (184 days)

It is the period between the day after the due date of the declaration deadline for the 2021 fiscal year, which was June 30, 2022, and December 31, 2022. The late payment interest rate in force in 2022 was 3.750 percent. Therefore:

  • Late payment interest for the year 2022: [(1,356 x 3.75 ÷ 100) x 184 ÷ 365] = 25.63

b. Intermediate period : from 01-01-23 to 31-12-24 (731 days)

It is the period between January 1, 2023 and December 31, 2024. The default interest rate in effect in 2023 and 2024 was 4.0625%. Therefore:

  • Late payment interest for the year 2023: [(1,356 x 4.0625 ÷ 100)] = 55.09
  • Late payment interest for the year 2024: [(1,356 x 4.0625 ÷ 100)] = 55.09

  • Total (55.09 + 55.09) = 110.18

c. Final period : 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The default interest rate in effect in 2025, until the State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (1.356 x 4.0625 ÷ 100) x 181 ÷ 365 = 27.32

d. Total late payment interest corresponding to the deduction for the 2021 financial year

Total late payment interest: 25.63 + 110.18 + 27.32 = 163.13 euros

2.11 Late payment interest corresponding to the undue deduction for 2022 (1,356 euros)

a. Initial period : from 01-07-23 to 31-12-23 (184 days)

It is the period between the day after the due date of the declaration deadline for the 2022 fiscal year, which was June 30, 2023, and December 31, 2023. The default interest rate in force in 2023 was 4.0625 percent. Therefore:

  • Late payment interest for the year 2023: [(1,356 x 4.0625 ÷ 100) x 184 ÷ 365] = 27.77

b. Intermediate period : from 01-01-24 to 31-12-24 (366 days)

It is the period between January 1, 2024 and December 31, 2024. The default interest rate in effect in 2024 was 4.0625 percent. Therefore:

  • Late payment interest for the year 2024: [(1,356 x 4.0625 ÷ 100)] = 55.08

c. Final period : 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The default interest rate in effect in 2025, until the State Budget Law for 2025 is approved, which may establish a new interest rate, is 4.0625%.

  • Late payment interest: (1.356 x 4.0625 ÷ 100) x 181 ÷ 365 = 27.32

d. Total late payment interest corresponding to the deduction for the year 2022

Total late payment interest: 27.77 + 55.08 + 27.32 = 110.17 euros

2.12 Late payment interest corresponding to the undue deduction of 2023 (1,356 euros) 

a. Initial period : from 02-07-24 to 31-12-24 (183 days)

It is the period between the day following the due date of the 2023 tax return deadline, which was July 1, 2024, and December 31, 2024. The default interest rate in effect in 2024 was 4.0625 percent. Therefore:

  • Late payment interest for the year 2024: [(1,356 x 4.0625 ÷ 100) x 183 ÷ 366] = 27.54

b. Final period : from 01-01-25 to 30-06-25 (181 days)

This is the period between January 1, 2025, and the date the 2024 personal income tax return is due, in this case, June 30, 2025. The late payment interest rate in force during this period is 4.0625 percent.

Late payment interest: [(1,356 x 4.0625 ÷ 100) x 181 ÷ 365] = 27.32

c. Total late payment interest corresponding to the deduction for the 2023 financial year

Total late payment interest: 27.54 + 27.32 = 54.86 euros

2.13 Late payment interest to be computed in the 2024 declaration

  • Corresponding to the undue deduction of 2012: 623.77
  • Corresponding to the undue deduction of 2013: 389.56
  • Corresponding to the undue deduction of 2014: 347.35
  • Corresponding to the undue deduction of 2015: 310.72
  • Corresponding to the undue deduction for 2021: 163.13
  • Corresponding to the undue deduction for 2022: 110.17
  • Corresponding to the undue deduction of 2023: 54.86

  • Total interest: 1,999.56

50% of the late payment interest for the years 2012, 2013, 2014, 2015, 2021, 2022 and 2023 will increase the state net contribution (€999.78) and the remaining 50% (€999.78) will increase the regional net contribution, or vice versa.