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V2572-14 1 October 2014 · SG de Impuestos sobre el Consumo Criterion in force
IVA · costas judiciales

Recovery of legal costs by the winning party is not subject to VAT as it is compensatory in nature

The taxpayer inquired whether VAT should be charged upon receiving legal costs following a successful court proceeding. The DGT ruled that this payment constitutes compensation rather than consideration for services, and therefore falls outside the scope of VAT.

The question raised

Taxation under Value Added Tax in the event that the applicant turns out to be the winning party in a judicial process, with the payment of costs being imposed on the losing party in the process.

The DGT's ruling

The payment of court costs implies compensation for expenses incurred and does not constitute consideration for services. As there is no transaction subject to tax between the winning party and the losing party, the imposition of VAT and the issuance of an invoice for this concept are not applicable. However, the professional services that gave rise to the expense may be subject to VAT if they were provided by independent professionals.

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