OUT OF COURT SETTLEMENTS • The Commissioner of Customs &
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Excise has reviewed its policy on the VAT treatment of payments made under out-of-court settlements of disputes after proceedings have been started by service of originating process (or appointment of an arbitrator).
It now takes the view that, where such payments are compensatory and do not relate directly to supplies of goods or services, they are outside the scope of VAT.
This will be so even if the settlement is expressed in terms that the payment is in consideration of the plaintiff's agreement to abandon his rights to bring legal proceedings.
Payments, however, will remain taxable if, and to the extent, that they are the consideration for specific taxable supplies by the plaintiff — for example, where the dispute concerns payment for an earlier supply, or where the plaintiff grants future rights to exploit copyright material under the settlement.