VAT liability in the case of the early termination of a contract for services
VAT is payable even in the case of the early termination of a building contract by the ordering party. This was the decision of the ECJ for an actual case where two Austrian companies had concluded a contract for services.
In the case considered in the ECJ judgement of 30.3.2023 (case: C-516/21), the ordering party had terminated the contract after works had commenced without the contractor being held responsible for this. Subsequently, the latter issued a final invoice for about €1.5m (incl. VAT) whereby the contractor took into account the works that had already been carried out as well as the costs that had been saved. However, the ordering party argued that no VAT was payable on the amount due in respect of the works not carried out since there had been no exchange of services.
In the opinion of the ECJ, even in the case of the early termination of a contract, a claim for remuneration for a supply of services has to be affirmed if the contractor had already begun carrying out the works and was prepared to complete them. There is a direct and immediate link between the commercial activity and the payment, even if the services are ultimately no longer being requested by the ordering party.
