ECJ Case C-43/19 (Vodafone Portugal) – Questions – Termination fees subject to VAT?

Source: minbuza.nl (Dutch)

• Vodafone concludes various service contracts for electronic communication, internet access and television.
• Sometimes these contracts have special promotions to which a minimum contract duration applies for the customer.
• The minimum contract duration is of fundamental importance for Vodafone to earn back part of the investment in equipment and infrastructure.
• In the event of non-compliance with the minimum contract duration, the customer must pay a certain amount.
• In contracts with customers, the conditions are specified and quantified and a minimum contract duration is set, the amount to be paid in the event of non-compliance being calculated on the basis of the aforementioned benefits and in proportion to the already expired part of the minimum contract duration.
• The amount to be paid may not exceed the costs incurred by Vodafone for the installation of the service.
• Vodafone did not pay VAT on the amounts it received from its customers for non-compliance with the minimum contract duration, but nevertheless started to do so following a supplementary assessment for 2012.
• On 06.01.2017, Vodafone filed its regular VAT return for November 2016 and paid an amount of € 620,132.79 in VAT.
• Although Vodafone has paid the VAT on those amounts, it is of the opinion that these amounts are not taxable.
• The tax and customs authorities state that the compensation is a consideration for a transaction subject to VAT and not exempt.
• Vodafone argues that the amount received is not a consideration for the provision of services to the customer, since payment is made after termination of the contract and its sole purpose is to compensate for the damage suffered as a result of the non-compliance and early termination of the contract.
• The question arises whether the amounts that Vodafone receives from its customers for non-compliance with the minimum contract duration and that are calculated according to the contract provisions are subject to VAT.

Questions:

1. Are services subject to VAT where a provider of electronic communication services to his former customers (to whom he has offered favorable conditions, such as free installation and activation, portability, equipment or special rates in exchange for compliance with a certain minimum contract duration, to which they have not committed themselves to a to be calculated) charge an amount that according to the law may not exceed the commissioning costs incurred by the service provider and must be in proportion to the benefit offered to the customer that is named and quantified as such in the concluded agreement, so that the amount does not automatically correspond to the total value of the subscription fees still to be paid on the date of termination of that agreement?
2. Is the fact that such amounts are only demanded from former customers after the termination of the agreement, that is when the service provider no longer provides services, and that after termination of the agreement consumption takes place, precludes them from being considered as consideration for services provided?
3. Should it be excluded that the amount in question is a consideration for services rendered because the service provider and his former customers, in accordance with a legal obligation in the general terms and conditions of the agreement, include the formula to calculate the amount to be paid in the event of non-compliance with the minimum contract duration specified in the contract?
4. Should it be excluded that the amount in question is a consideration for services provided if that amount does not correspond to the amount that the service provider would have received for the remainder of the minimum contract duration if the contract were not have been terminated?