Punitive damages from warning Income tax liability?
February 8, 2015 | 25,00 EUR | answered by Dipl.-Kfm. Frank-Olaf Illiges
I have a business (including office equipment mail-order business). Through a competition law warning from my appointed lawyer to a competitor, I have received a cease and desist declaration from the competitor, who has agreed to pay me a penalty in case of a repeated violation.
Due to a repeated violation that has now occurred, I have claimed and received a penalty of 2,500 euros (excluding VAT) from the competitor.
The question now is whether this penalty must be booked in the income tax as taxable or non-taxable income and accordingly flows into the annual profit or not.
Operating income is income that an entrepreneur generates in the course of their business activities. My COMMERCIAL activity is the trade of office equipment and not of warning actions.
Dear inquirer,
Thank you for your inquiry, which I will gladly answer taking into account your effort and the rules of this platform.
Please note that my explanation is based on the facts presented, and that adding, omitting, changing information, or the ambiguity of information can change the tax result. Please be aware that this cannot replace individual comprehensive advice.
The penalty of 2,500.00 EUR is a monetary receipt initiated by your business and therefore, as a business income, is subject to income and trade tax. (H 4.7 "Business Income" Income Tax Guidelines (EStH)).
Due to the lack of an exchange of services, the penalty of 2,500.00 EUR is not subject to value added tax. (1.3 Para. 1 Value Added Tax Application Decree (UstAE)).
Kind regards,
Dipl.-Kfm. Frank-Olaf Illiges
Tax advisor
Am Wieksbach 55
33378 Rheda-Wiedenbrück
Phone: 05242/4055666
Fax: 05242/4055677
email: office@illiges-steuerberatung.de
Website: www.illiges-steuerberatung.de
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