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A City Council has requested clarification on whether the economic compensation owed to a water concessionaire, resulting from a reduction in user tariffs, is subject to VAT. The Directorate-General for Taxes (DGT) has ruled that this amount does not constitute consideration for a service, but rather an indemnity without a consumption act.
This ruling clarifies that compensatory payments made to concessionaires to offset tariff reductions do not trigger VAT, as they lack the element of service provision or consumption.
The tax team reviews your specific situation.
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