Donnerstag, 25.09.2025
Sales tax on severance pay: What architects need to know
from
Simon EschLawyer
Specialist lawyer for construction and architectural law
Give me a call: 0261 - 404 99 62
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The assumption made by many architects that no sales tax is payable on remuneration for services not rendered in the event of premature termination of a contract can prove to be a serious mistake. Current case law shows that even the portion of the fee attributable to services not performed may be subject to sales tax. The decisive factor here is that, in the view of the courts, this still constitutes a consideration subject to sales tax.
In the underlying case before the Berlin Court of Appeal, a client had terminated an architect's contract. The architect issued a final invoice in which he included, in addition to the remuneration for services rendered, a proportionate amount for services no longer performed and charged VAT on this amount. also included a pro rata share of the remuneration for work no longer performed and charged VAT on this. The court confirmed that this VAT claim is lawful, as the remuneration had already been bindingly agreed upon conclusion of the contract and is merely adjusted accordingly in the event of termination.
This legal opinion is expressly based on a ruling by the European Court of Justice in November 2024. According to this ruling, termination compensation is not to be regarded as pure compensation for damages, but as a payment subject to value added tax. The fact that the service is no longer provided is irrelevant as long as the payment is based on the original contract. Even savings resulting from the non-performance of the work are irrelevant for tax purposes according to this interpretation.
For architects, this means that in the event of contract termination, they should always include VAT on the portion of the remuneration for services not rendered in their final invoice. If they fail to do so, there is a risk that they will have to pay the tax later from their own resources. This can lead to considerable financial burdens, especially in the case of higher fee volumes.
As it is currently unclear whether and how the tax authorities will adopt this ruling, it is advisable to seek expert advice in good time. A final invoice that is structured correctly from a tax and legal perspective is the best protection against unexpected additional claims. In the area of planning contracts in particular, it is once again clear that a precise contract and billing strategy is essential.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.