LexGo

Termination fees often subject to VAT
15/06/2020

Following a ruling of the CJEU, termination fees in the event of early termination of a contract are often triggering VAT. Especially in B2C-situations, were the customer does not have a right to recover VAT, such VAT is likely to result in a significant VAT burden for businesses.

Vodafone Portugal

On June 11, 2020 the CJEU issued its long-awaited judgement in the Vodafone Portugal case (C-43/19). In the context of its business activities, Vodafone Portugal concluded various contracts with its customers for rendering e-commerce services. Some contracts included special promotions subject to the condition for the customers to agree upon a minimum contract period. Failure by the customers to comply with such tie-in period resulted in them having to pay a termination fee amounting to certain pre-determined costs, computed in accordance with Portuguese legislation.

The CJEU was asked to rule as to whether the termination fees would be subject to or free from VAT. In short, the CJEU decided that the termination fees at hand are subject to VAT, for the reason that the termination fees (i) have been pre-agreed upon and (ii) equal a certain statutory cost base. It remains uncertain whether terminations fees would be free from VAT, if the termination fees would not have been pre-determined or would have served as a compensation of damages.

Practical impact

In many industries, not only e-commerce, non-compliance with contractual obligations often results in the customer having to pay termination fees. From the Vodafone Portugal case, it can be derived that termination fees are often triggering VAT. However, we feel that – under certain conditions – termination fees could still be free from VAT. We would therefore recommend to (timely) conduct a brief VAT check on non-compliance / early termination clauses in commercial agreements.

Zie ook : Loyens & Loeff Luxembourg S.à r.l.

[+ http://www.loyensloeff.com]


Click here to see the ad(s)
Alle artikels BTW

Laatste artikels BTW

Decision of the Court of Cassation on the deductibility of VAT incurred on general expenses
04/05/2022

In a recent decision, the Luxembourg Supreme Court (Cour de cassation) rejected an appeal (pourvoi en cassation) lodged by...

Decision of the Court of Cassation on the deductibility of VAT incurred on general expenses Read more

Disproportion between costs and income does not prevent input VAT recovery
28/04/2022

The Luxembourg Court of Cassation had the opportunity to adjudicate at last instance on a condition for the right to deduc...

Disproportion between costs and income does not prevent input VAT recovery Read more

EU Finance Ministers agree on update of VAT rates
20/12/2021

On 7 December, the EU finance ministers (unanimously) agreed to update the current rules governing VAT rates for goods and...

EU Finance Ministers agree on update of VAT rates Read more

VAT deduction right of Lux PropCos owning/exploiting German real estate – VAT changes
08/09/2021

In its decision C-931/19 (“Titanium case”), the Court of Justice of the European Union (“CJEU”) ru...

VAT deduction right of Lux PropCos owning/exploiting German real estate – VAT changes Read more

LexGO Network