In this article, the author deals with the VAT treatment of cancellation charges and compensations under the VAT system of the European Union, as interpreted by the European Court of Justice (ECJ). In the absence of provisions on these topics in the Community legislation, the judgments of the ECJ are particularly important. To date, the ECJ has only delivered two judgments on this topic. It is, however, not the quantity, but the quality of the judgments that makes them special.