Contract termination : VAT on non-provided services

On November 28, the Court of Justice of the European Union has rendered a new judgement confirming the application of the VAT on the amount contractually due by the recipient of taxable services following the unjustified termination of the contract by the recipient, despite the willingness of the supplier to pursue their provision.

This new preliminary ruling of the CJEU requested by the Supreme Court of Austria reaffirms the global tendency of the Community case law which systematically applies the VAT defining term of the remuneration for a supply of services for consideration even in absence of the supply, if the later was contractually ordered by the recipient.

While the previous cases concerned the non-used plane tickets and the no-shows in hotels (see our previous article from October 16), the ECJ case C-622/23 was raised around the building project in Austria, involving two Austrian companies. The services were started by the construction’s undertaking (rhtb: projekt gmbh) on behalf of its customer (Parkring 14-16 Immobilienverwaltung GmbH) who terminated the contract before the project’s achievement, for reasons not attributable to the supplier (rhtb).

According to the CJEU, the fact that the recipient of services decides not to use them does not change the nature of the amount remaining contractually due, which should follow the same VAT regime as the initially contracted services. The only VAT exempted exception would be the compensation for the loss if it is foreseen as such in the contract and if it has no direct link with the ordered services.

We therefore remind the importance of the careful use of contractual terms for avoiding any post-contract disputes, including the related tax issues.

Feel free to contact our VAT expert for any additional information: contact@btobnice.com