The new CJEU judgment: The VAT concept of debt collection and the tax treatment of factoring fees
C 232/24. – Kosmiro
The CJEU’s new judgment provides guidance on the interpretation of the concept of “debt collection” for VAT purposes and on the VAT treatment of ancillary fees related to factoring.
The plaintiff in the case was a Finnish financial institution that provided two types of factoring services. First, pledge-type factoring, under which it granted a loan to the client who, as security for the loan, offered a recognised receivable against a third party. Second, “true” factoring based on the purchase of receivables, under which the institution assumed full responsibility for the risk of non-payment of the purchased receivable. In both types of factoring, the financial institution included in the factoring fee a financing commission, the amount of which depended on the credit quality of the debtor and the length of the payment period for the receivable. In addition, the factoring fee also comprised a preparation fee, determined as a lump sum element to cover general administrative costs. The financial institution sought an advance ruling from the Finnish tax authority to confirm that both the financing commission and the preparation fee constituted consideration subject to VAT, and did not form part of the taxable base of the VAT-exempt service of granting credit. The tax authority disagreed, and the claimant brought an action before the courts. The request for a preliminary ruling was submitted by the Supreme Administrative Court of Finland.
In its judgment, the CJEU confirmed that both the financing commission and the preparation fee constituted consideration for debt collection services (and not for the granting of credit). The Court reasoned that the value of the financing commission was higher where the payment term was longer and the factor assumed a greater degree of risk, while the preparation fee covered, on a lump-sum basis, the costs of preparing and executing the collection of the receivables.
The CJEU further emphasised that the concept of “debt collection” for VAT purposes must be interpreted uniformly throughout the European Union, in accordance with the logic of the VAT exemption for financial services. (EU legislation expressly excludes debt collection from the scope of VAT-exempt financial services.) Based on its economic substance, both the pledge-type factoring and the factoring based on the purchase of receivables provided by the claimant fall within the category of “debt collection” and therefore cannot benefit from VAT exemption. The financing commission and the preparation fee charged by the claimant are economically inseparable from the debt collection service and therefore form part of the taxable amount of a VATable service.
Finally, the CJEU also held that the exception for “debt collection” laid down in Article 135(1)(d) of the VAT Directive is unconditional and sufficiently precise and therefore has direct effect, meaning that taxpayers may rely on it directly before national courts against the State.
Lépjen kapcsolatba szakembereinkkel!
Az alábbi űrlap segítségével feliratkozhat szakmai hírlevelünkre, így folyamatosan értesítjük az adózás, a könyvelés és a bérszámfejtés területén megjelenő újdonságokról.
