Taxpayer withholdings must be regularized for early withdrawal from time deposit accounts

3 December 2008

In the case that led to this ruling, the Caixa d’Estalvis del Penedés paid interests up front for a time deposit account. At a later date, the entity penalized the depositor for early withdrawal of funds and deducted the interest that it had already paid out at the start of the contract. The banking entity then regularized the corresponding withholding, since the first withholding had been based on a higher interest rate than that finally obtained when the contract was terminated. The tax authorities, on the contrary, deemed the entity’s retroactive withholdings to be inappropriate.

A special division of the Supreme Court (Audencia Nacional), in their ruling dated June 30, 2008, upheld the savings bank’s actions, considering that, having deducted the interest paid to the depositor as a consequence of the early fund withdrawal penalty, the 18% withholding on interest in question could not be carried out on the amount paid out up front, but rather on the final amount paid to the depositor at the contract’s termination. In this way, the tax authorities were not unfairly enriched.

Notwithstanding, the ruling contains a specific vote against the regularization of the withholding rate. In this case, reducing the withholding is considered inappropriate, as the interests were deemed due and, based on Article 94 of the LIRPF, the obligation to deduct originates at the time in which the yields are due or at the time of their payment or delivery, which in this case was at the start of the contract term.

For further information, please contact Javier Valls Aracil: jvalls@mmmm.es