Taxation of Default Interest in Personal Income Tax (IRPF): Legal Uncertainty, Legitimate Trust, and the Temporary Effects of a Jurisprudential Change

Abstract

This paper analyzes the evolution of the tax treatment of late payment interest received by taxpayers as a result of refunds of undue payments within the framework of the Spanish Personal Income Tax (IRPF). After a period of significant doctrinal dispersion, characterized by contradictory administrative rulings and fragmented case law, the Supreme Court established a binding precedent in 2020, declaring that such interest was not subject to taxation. However, this interpretation was overturned three years later by a new Supreme Court ruling, which substantially modified the previous criterion and considered late payment interest as a capital gain subject to taxation. The paper details this evolution, as well as the responses of the Directorate General of Taxes (DGT) and the Spanish Economic-Administrative Court (TEAC) to the new criterion, focusing particularly on the temporal effects of the change and its implications for legal certainty, legitimate expectations, and equality before the law. From both a doctrinal and practical perspective, the lack of mechanisms limiting the retroactive effects of jurisprudential shifts is criticized, advocating for a guarantees-based tax model that preserves taxpayers’ legitimate expectations amid constantly evolving interpretations. Finally, the paper highlights the need for a definitive clarification by the Supreme Court —currently pending in cassation appeal No. 1039/2025— and suggests the advisability of regulatory intervention to explicitly address this issue, thereby reinforcing the legal certainty of the tax system.