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Payment for early termination of a work contract from a VAT perspective

In its judgment C-622/23, the Court of Justice of the European Union (CJEU) addressed the question of whether payment for early termination of a works contract (construction project) is subject to VAT.

In the present case, the client withdrew from the contract without justification, while the contractor had already started its work. The contractor claimed the contractually agreed remuneration (after deduction of the costs saved as a result of the unjustified termination of the contract in question), including VAT.

The CJEU, referring to its earlier case law, held that the amount to be paid following the early termination of a contract for the supply of services is subject to VAT. If the supplier had started to provide the services and was ready to complete them, that amount constitutes consideration for the service provided.

If you have any questions, please contact the authors of this article or the EY team you are working with.

Authors:

Ivana Krylová

Lenka Doležalová