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V2531-19 18 September 2019 · SG de Impuestos sobre el Consumo Criterion in force
IVA · indemnización

Contract termination compensation is exempt from VAT, but compensation for goods delivered is subject to it

A taxpayer has enquired whether indemnities paid due to the termination of a commercial lease agreement are subject to VAT. The DGT distinguishes between compensation for damages, which is not subject to VAT, and compensation for the delivery of goods (machinery, furniture, etc.), which is subject to the tax.

The question raised

Liability for Value Added Tax on the payment of the indicated indemnities.

The DGT's ruling

Compensation for damages, losses, and loss of profits arising from the early termination of the contract does not constitute consideration for a transaction subject to VAT. However, the compensation for the investment in machinery, equipment, and furniture that remains in the possession of the lessor constitutes a supply of goods subject to the tax. In this second case, the lessee is the taxable person and must issue an invoice charging VAT.

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