Cancellation or dissolution fee: VAT or no VAT?

Cancellations, dissolutions, and terminations of agreements occur regularly, particularly during the COVID-19 pandemic. Some situations may give rise to cancellation and/or dissolution fees. The VAT treatment of such fees is difficult. The question is whether VAT is owed on such fees because it is considered part of the compensation for the performance of services to be rendered, or whether the fee is untaxed compensation.

Source BDO

See also

• ECJ case C-43/19 (Vodafone Portugal) – Judgment – Termination fees subject to VAT
• Compensations, cancellations and non-payments in the ECJ case-law on VAT