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A local council has requested clarification on whether compensation paid to contractors for the suspension of services during the COVID-19 state of alarm is subject to VAT. The Directorate-General for Taxes (DGT) has ruled that these amounts should not be included in the tax base.
This ruling clarifies that compensation for damages resulting from contract suspensions due to the pandemic does not constitute a consideration for a service, thus exempting such payments from VAT.
The tax team reviews your specific situation.
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