On 20 January 2022, the Court of Justice of the European Union (CJEU) issued its judgment in case C-90/20, Apcoa Parking Danmark. In this judgment, it was decided that certain control fees chargeable in the event of failure by the users of car parks to comply with the general terms and conditions for use of those car parks should be subject to VAT as these charges are regarded as remuneration for consideration.
The arguments put forward by the CJEU in achieving its decision were that users enjoy rights and assume obligations in accordance with the general terms and conditions for the use of the car parks concerned, which include, the provision of a parking space and the obligation on these users to pay, in addition to the parking fees, the amount corresponding to the control fees in the event of failure to comply with those general terms and conditions. In the CJUE´s opinion, the general condition for VAT to be charged relating to the existence of reciprocal performance between the provider of the service and the recipient seems to be fulfilled. Accordingly, the total amount of the sums which the users have undertaken to pay including the control fees for parking in breach of the regulations, represents the terms and conditions under which they actually benefited from a parking space. This makes these amounts subject to VAT even though they may appear to be a kind of penalty for not complying with a number of conditions of a contract.
In this particular case, it is true that the users of the car park have enjoyed the service purchased for which they have paid a certain amount as remuneration. However, it may be more arguable that the amount paid as a consequence of not complying with a number of terms and conditions included in the contract should be considered as a remuneration of the service in question. This is an overly broad interpretation of the concept of “for consideration” mentioned in article 2(1)(c) of the VAT Directive since in practice almost any kind of compensation or penalty except those in the strict sense of a «fine» will be related to any existing legal relationship between a service provider and his customer.
It seems obvious and undisputed that there is a relationship between the amounts paid by the parties not only for the service provided but also as a consequence of not fulfilling certain commitments (e.g. for early cancellation of contracts or for failing to comply with any of the terms of said contract) and the service in question. The question is whether this relationship is sufficiently direct to be considered as part of the remuneration for the service rendered.
This is yet another case, and not the only one, in which amounts paid by taxable persons for compensation, penalties or similar situations are considered by the CJEU to be subject to VAT because they are related in some way to a previous supply and to a commitment agreed between the parties. Similar conclusions were reached by the Court in cases like the C-295/17, MEO or C-49/12, Vodafone Portugal. In these cases, the CJEU decided that charges for early termination of a contract for which a minimum duration had been agreed were subject to VAT.
It is widespread practice for businesses to consider any charges used to penalise their customers for certain behaviors such as the early termination of contracts as non-VATable amounts. In the light of recent CJEU´s judgments, the situation appears to be exactly the opposite and cases of non-taxation for VAT are actually becoming rare according to the Court´s criterion.
We seem to be moving towards a view that anything which cannot be strictly qualified as a “fine” will be subject to VAT as it relates to any prior legal relationship whereby the parties exchange goods or services for a consideration.
If this is to be the way forward, a clarification of the concept of “for consideration” is more than necessary. There are already several court cases in this sense, so we can actually speak of case law. This makes it necessary to adapt the VAT Directive to this new trend for which a clarification of the scope of articles 2(1)(c) and 73 of the VAT Directive would be most welcome not only for taxable persons but also for Tax Administrations. It is necessary for all parties to have clear guidance on what kind of charges can safely be considered as not subject to VAT. The proof that this is an increasingly complex issue is the number of cases on this subject that have recently come to the CJEU’s attention.