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V1473-18 30 May 2018 · SG de Impuestos sobre el Consumo Criterion in force
IVA · indemnización

Damages for inability to use premises are not subject to VAT

A tenant inquired whether the financial compensation received from a landlord due to the early termination of a lease agreement (caused by a lack of administrative licences) is subject to VAT. The DGT ruled that, as there is no act of consumption or consideration for a service, it constitutes compensation for damages and is therefore not subject to the tax.

The question raised

Liability for Value Added Tax.

The DGT's ruling

For an amount to be exempt from VAT, it must be compensation that indemnifies a loss or damage without the recipient receiving any service or delivery of goods in return. The tax does not apply when the payment does not constitute consideration for a consumption transaction. In this case, the amount received for the impossibility of using the property does not constitute a provision of services, but rather compensation for damages.

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