- On November 28, 2024, the European Court of Justice issued a ruling on VAT treatment for unilateral termination of construction contracts
- The case involved RHTB, a service provider, and Parkring, a client, who entered a construction contract in March 2018
- Parkring terminated the contract in June 2018, leading RHTB to demand payment for the unperformed work
- Initial court ruling favored RHTB, but an appellate court reversed this, ruling no VAT was due on the payment for unperformed work
- The Austrian Supreme Court sought clarification from the CJEU on whether such payments should be subject to VAT
- The CJEU ruled that payments after unilateral contract termination are subject to VAT, emphasizing the right to service suffices for a taxable transaction
- The court highlighted a direct link between the service provided and the payment, maintaining this link even if the full service is not used
- The ruling considered the economic and commercial reality, ensuring the contractor receives minimum remuneration
- Previous case law such as Vodafone Portugal and MEO supported the decision, treating termination fees as subject to VAT
- The decision underscores that payments in such scenarios are not compensation for damages but remuneration for services agreed upon
Source: vat-consult.be
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
