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Compensation for early termination of the lease agreement may be subject to VAT

Date26 Nov 2013

According to the ruling of the Regional Administrative Court in Warsaw of 15 February, 2013 (file III SA / Wa 1882/12) compensation for the early termination of the lease agreement is not subject to VAT, under the condition that is associated with injury resulting from termination of the contract. In the event that the agreement stipulated the possibility of early termination of the lease, without indicating that it may have occurred due to violation of certain conditions or lack of specific actions, damages or penalty arising from the above will be subject to VAT. As we read in the explanatory memorandum: “In these justified circumstances, according to the court, the Minister of Finance considers that these amounts should be treated as remuneration for services relating to the abolition of the fact that a counterparty will exercise its right to terminate the contract prematurely. Through the provision meant for each behavior on behalf of another person, may not be submitted to both the action – doing, do something for another person, and failure – a failure to or tolerance, elimination of certain states of affairs“.