The Supreme Court (TS) establishes that the compensation paid by a company to a worker for the wages he stopped receiving when he was not reinstated to his position after a leave of absence must be taxed in personal income tax. In the opinion of the Chamber, these amounts are not covered by the exemption of article 7.d) of the Personal Income Tax Law, because they do not repair personal injuries, but rather economic damage derived from the employment relationship.
Ruling 291/2026, of March 10, analyzes the case of a worker who received compensation for not having been reinstated after a leave of absence. The amount was set taking as a reference the salaries not received during the period in which the company failed to comply with its obligation to reinstate him, a key circumstance in the court’s decision.
Difference between personal injury and economic injury
The legal key explained by the Supreme Court is in article 7.d) of the Personal Income Tax Law, where it says that compensation recognized for personal injuries is exempt, always within the legal or judicially established amount. Now, the High Court points out that this tax advantage does not extend to compensation that repairs an economic loss, even if it has been recognized in a ruling.
The litigation comes after the Tax Agency regularized the worker’s tax, understanding that the amount received could not be considered exempt. The Supreme Court now endorses this interpretation and makes it clear that, in this case, physical, mental or moral damage was not being repaired, but rather compensation for lost profits linked to uncollected salary income.
The resolution also connects this conclusion with article 17.1 of the Personal Income Tax Law, which defines as income from work all compensation that derives directly or indirectly from personal work or the employment relationship. From this logic, the court remembers that if the ordinary salary is taxed, so must the amount that replaces or compensates it when it is paid subsequently by judicial decision.
The practical relevance of the ruling is evident. Based on this doctrine, judicially recognized compensation for failure to re-enter after a leave of absence, when calculated based on wages not received, cannot be presented as exempt income in personal income tax. The criterion thus delimits more precisely where compensation for personal injuries ends and where financial compensation subject to taxation begins.