The European General Court ruled on 11 February 2026 in case T-643/24 Credidam that damages for copyright infringement constitute taxable consideration for VAT purposes, contradicting German administrative practice that treats such compensation as non-taxable damages.
Decision
The Court held that unauthorised public reproduction of protected works results in procurement of a service, with the user obtaining a consumable advantage through use. The principle of VAT neutrality prohibits differentiation between authorised and unauthorised uses of copyrighted material. Romanian collective management organisation Credidam sought payment including VAT from a guest house operator for unauthorised use of sound recordings and audiovisual content, with national law requiring triple the normal licence fee.
The Court determined that surcharges form part of the taxable amount, emphasising the subjective value of consideration actually owed rather than civil law classification as damages or penalties. The collective management organisation acts on behalf of rights holders when collecting remuneration, making the entire statutory amount taxable consideration.
Context
The decision aligns with ECJ jurisprudence on VAT treatment of damages but challenges established German practice. The German Federal Court of Justice and Federal Ministry of Finance previously agreed that damage payments calculated via licence analogy remain outside VAT scope. Tax authorities must now reconsider distinctions between genuine and non-genuine damages, with rights holders requiring clarity on VAT obligations when assessing compensation claims.
