- VAT Treatment Complexity: The VAT treatment of cancellation, dissolution, and termination fees is complex, particularly during the COVID-19 pandemic, as it involves determining whether these fees are taxed as part of service compensation.
- ECJ Ruling on Vodafone Portugal: The EU Court of Justice ruled that fees paid for early termination in the Vodafone Portugal case are considered remuneration for services, thus subject to VAT.
- Case Law Clarification: The ECJ’s decision aligns with previous cases (MEO, Société thermale d’Eugénie-les-Bains, Air France-KLM), providing further clarification on when VAT applies to termination fees.
- Factors Influencing VAT: Various factors, such as whether the fee is compensation for damages or if services were rendered, influence whether VAT applies to cancellation or dissolution fees.
- Financial Considerations for Entrepreneurs: Entrepreneurs should ensure not to waste money, especially during the pandemic. VAT on refunded amounts can be reclaimed, and issuing a credit invoice is advised if compensation qualifies for VAT refund. Always consult a VAT adviser.
Source
- BDO
- Simmons & Simmons
- Francisco Javier Sánchez Gallardo Compensations, cancellations and nonpayments in the ECJ case-law on VAT
