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A lawyer inquired whether VAT should be applied to the amount of legal costs awarded following a successful lawsuit. The DGT ruled that the payment of legal costs constitutes compensation rather than consideration for a service, and therefore is not subject to VAT.
Issue raised: VAT treatment of the award for legal costs.
The payment of the award for legal costs implies compensation for the expenses incurred by the prevailing party. Given its compensatory nature, it does not constitute consideration for services, and the imposition of VAT by the prevailing party upon the losing party is not applicable. The recipient of the professional service is the prevailing party, not the party ordered to pay the costs.
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