Skip to content
Back to index
V0408-18 16 February 2018 · SG de Impuestos sobre el Consumo Criterion in force
IVA · indemnización

Damages are not subject to VAT if they do not constitute consideration

A company has requested clarification on whether VAT should be applied to court-ordered compensation for errors in the execution of a construction project. The Directorate-General for Taxes (DGT) has ruled that if the amount compensates for damages and losses and does not constitute consideration for a transaction, it is not subject to VAT.

The question raised

Liability for Value Added Tax on the aforementioned indemnity.

The DGT's ruling

To determine the liability for VAT, it must be analyzed whether the indemnity constitutes consideration or compensation for a supply of goods or a provision of services. If the judicial indemnity is intended to compensate for damages caused, it shall not be consideration for any transaction subject to the tax. In that case, VAT shall not be charged upon receipt of the amount.

Book your free first meeting