In practice and to the detriment of the seller who receives a settlement, it appears that parties to an out-of-court settlement are often not informed of the VAT treatment on compensation and, as such, do not take into account the VAT component in the agreement or agreement. If the transaction agreement does not specify whether the compensation is included or VAT-free, the compensation is considered to be VAT included at the standard rate of 15% within the meaning of Section 64 of the VAT Act. The supplier seller, i.e. the recipient of the payment, is therefore obliged to pay VAT and cannot recover the amount of VAT from the other party in addition to the compensation already agreed under the transaction agreement. This is in line with the approach taken so far by our courts, which have found that the VAT obligation applies to the supplier seller and not to the recipient with regard to a turnover for which VAT must be paid. The Commissioners of Customs – Excise have reviewed their VAT payment processing policy as part of the out-of-court settlement of disputes, after the proceedings have been initiated by the service of an original procedure (or the appointment of an arbitrator). This is particularly true for VAT-compliance scenarios. For example, if the amount is a refund and triggers a credit and reduces the excess input and output tax, everyone must agree before the payer goes to HMRC for a production tax refund. It follows that, when a party to the dispute agrees to waive its right to sue another party against compensation, the compensation is an identifiable payment that is reciprocal and is directly related to the delinquening party`s right to take legal action against the opposing party. When the right is abandoned by a seller as part of or as part of the promotion of his business, the compensation received is a consideration for the taxable benefit of a service. As a result, the creditor who receives the compensation must account for VAT on it at the level of the tax share (15/115) of the payment. As an illustration, it appears that the failure to admit VAT to an out-of-court settlement has the following consequences: where a transaction relates in part to the provision of services and partly to the compensation of a seller for the losses suffered, it is necessary to distribute the payment fairly under Article 10, point 22, of the VAT Act.