Court of Justice 7 June 2018, C-295/17 (MEO – Serviços de Comunicações e Multimédia SA v Autoridade Tributária e Aduaneira.)

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In this Opinion (Case C-295/17, MEO v. Autoridade Tributária e Aduaneira), Advocate General Kokott opines that a pre-determined indemnity charged by a telecommunications operator upon early termination of a minimum-period contract is subject to VAT under Article 2(1)(c) of Directive 2006/112/EC, because it constitutes consideration for services already supplied rather than compensation for pecuniary damage. The AG reasons that the indemnity is economically equivalent to the outstanding instalments of a fixed minimum price, and that—consistent with Air France-KLM and Hop!-Brit Air—compensation in the absence of genuine harm would be unjustified, so the payment retains its character as remuneration for the contracted services. The AG further advises that VAT must be calculated on the agreed indemnity amount and that, where payment is not received, the trader's tax liability must be corrected pursuant to Article 90 of the VAT Directive; the classification of the indemnity under national law as a contractual penalty (cláusula penal) is irrelevant to this EU-law assessment.AI