Comments on ECJ case C-622/23: Compensation After Contract Termination: Payment or Damages? ECJ Ruling Expands Definitions

• The European Court of Justice broadened the definitions of exchange of services and compensation in its ruling on November 28, 2024
• VAT is applicable when there is a direct link between a service provided and a payment received
• The distinction between contractual or legal compensation payments and damages is complex in practice
• RHTB, an Austrian construction and project development company, had its contract terminated early by the client without legal reason
• Civil courts awarded RHTB the remaining contract fee minus saved expenses
• There was disagreement on whether this payment should be subject to VAT or considered non-taxable damages
• The Austrian Supreme Court referred this VAT qualification issue to the European Court of Justice
• The European Court of Justice ruled that the payment was not damages but a taxable payment for services intended to be rendered
• The ruling contradicts the German financial administration’s view which sees such payments as damages
• The decision aligns with the European Court of Justice’s trend of broadly interpreting the concept of compensation

Source: umsatz-steuer-beratung.de

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.

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