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V2419-20 14 July 2020 · SG de Impuestos sobre el Consumo Criterion in force
IVA · indemnización

Indemnification for contract suspension may be subject to VAT if covering reactivation costs

A public company asks whether indemnification for temporary contract suspension in a consultancy agreement is subject to VAT. The DGT determines that compensation for damages and losses is exempt from VAT, but compensation for reactivation costs is subject to VAT.

The question raised

Liability for Value Added Tax regarding the described compensation.

The DGT's ruling

The portion of the compensation that indemnifies damages for the vacancy of employees is not subject to VAT as it does not constitute an act of consumption. However, the portion that compensates for the project 'restart' costs has the nature of service remuneration and must include VAT as an advance payment. If VAT has been charged on the total amount, the provider must rectify the unduly collected tax amounts.

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