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A lawyer inquired whether VAT should be charged to a client paying legal costs following a successful lawsuit. The Directorate General of Taxes (DGT) ruled that the payment of costs constitutes compensation rather than a provision of services between the parties to the litigation.
This ruling clarifies that legal cost reimbursements between litigants do not constitute a taxable event for VAT purposes, as they lack the element of a service exchange.
The tax team reviews your specific situation.
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