Italy Tax Agency Clarifies VAT Treatment of Court Awards for Construction Contract Delays

The Italian Revenue Agency Aug. 20 issued Letter No. 215/2025, clarifying the VAT treatment of court awards for construction contract delays. The taxpayer, a general contractor, sued a subcontractor for increased costs incurred in work delays. The court ordered the subcontractor to pay the taxpayer a monetary award with interest. The taxpayer inquired whether it should apply VAT when issuing the subcontractor invoices for the award. Upon review, the Tax Agency clarified that: 1) the payments that the subcontractor was required to make weren’t compensatory because the contract was terminated and the construction work was completed; and 2) the payments ...