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A company inquired whether the payment received for the termination of a photovoltaic plant construction contract was subject to VAT. The DGT explains that if the payment compensates for damages, it is not subject to VAT, but if it is for the waiver of rights or is linked to the operations of the contract, it is subject to VAT.
Question posed: Whether the aforementioned compensation would be subject to Value Added Tax and, if so, whether the applicant must proceed with the rectification of the tax liability and the issuance of a corrective invoice.
To determine taxability, it must be analyzed whether the payment seeks to compensate for damages or if it is consideration for a service or a waiver of rights. If the compensation is linked to the operations of the contract or to the waiver of rights, it is subject to VAT. In that case, if an invoice was issued without VAT, the tax liability must be rectified through a corrective tax return including surcharges and interest, and a corrective invoice must be issued.
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