Roadtrip through ECJ cases: Focus on ”Termination/cancellation fees” (Art. 90)

Last updated: October 16, 2025

The ECJ has decided in few cases on the determination of the Taxable Amount if contracts are terminated or in case of payment cancellation fees.

Importance of art. 90 of the EU VAT Directive 2006/112/EC.

Article 90 of the EU VAT Directive 2006/112/EC plays a crucial role in ensuring fairness and proportionality in the VAT system. Here’s why it’s important:

Adjustment of Taxable Amount

Core Principle: Article 90 requires that the taxable amount for VAT be reduced when the price is reduced after the supply, or when the supply is cancelled, refused, or not fully paid.
This ensures that VAT is only levied on the actual consideration received by the supplier.

️ Protection for Businesses

It protects suppliers from having to pay VAT on amounts they never actually collect—such as in cases of bad debts, returns, or contract cancellations.
Without this provision, businesses would face a disproportionate tax burden, especially in sectors with high cancellation or default rates.

National Flexibility

Article 90(2) allows Member States to derogate from the general rule in specific cases, such as non-payment, to prevent abuse or administrative complexity.
This flexibility has led to divergent practices across the EU, with some countries requiring proof of irrecoverability before allowing VAT adjustments.

⚖️ Legal and Practical Impact

It is often at the center of disputes involving cancellation fees, credit notes, and bad debt relief.
The ECJ has interpreted this article in several landmark cases, clarifying when and how VAT adjustments must be made.

In short, Article 90 is a key safeguard that aligns VAT liability with economic reality, ensuring that tax is only paid on actual revenues.

Article in EU VAT Directive 2006/112/EC – Art. 90

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

ECJ Cases – Decided