VAT taxation of contractual penalties for non-realisation of purchase volumes by contractors

Judgment of the Provincial Administrative Court in Rzeszów of 16 January 2024, ref. no. I SA/Rz 516/23.

The case was about a company seeking an interpretation on whether contractual penalties for failure by contractors to complete the volume of purchases are subject to VAT. The company argued that the penalties are not related to mutual performance and should not be subject to VAT, but the National Tax Information Office and the Provincial Administrative Court disagreed. They ruled that the penalties are connected to the actual services provided and are therefore subject to VAT. This case highlights the importance of analyzing the nature of benefits under VAT regulations and the potential risks of incorrect recognition of transactions.

Source MDDP

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