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A taxpayer inquired whether they could deduct VAT from a proforma invoice for legal costs following a court ruling against them. The Directorate-General for Taxes (DGT) ruled that the payment of legal costs constitutes compensation to the winning party and does not represent a taxable transaction for the losing party.
The ruling clarifies that payments made to cover the opposing party's legal costs are not subject to VAT, meaning no input VAT can be reclaimed on such amounts.
The tax team reviews your specific situation.
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