- The Korkein Hallinto-oikeus, Finland’s supreme administrative court, has referred the case “Kosmiro” (C-232/24) to the European Court of Justice (ECJ) to clarify VAT applicability on factoring operations, raising five key questions regarding the nature of various fees involved.
- Factoring involves a specialized factor managing a client’s accounts receivable, with the arrangement potentially being on a no-recourse basis (pro soluto) or a recourse basis (pro solvendo), which affects the VAT treatment of the transaction.
- Divergent approaches to VAT treatment exist among EU countries, with some allowing partial exemptions (like the UK) and others, like Italy, focusing on the predominant nature of the transaction to determine VAT applicability.
- The ECJ has previously indicated that activities related to debt collection and factoring are generally not VAT exempt, as seen in past cases such as MKG (2003) and AXA UK (2010), while recent Italian court rulings have leaned towards treating factoring as a service subject to VAT.
- The Italian tax authority, Agenzia delle Entrate, holds a conflicting view, asserting that factoring is primarily financial and should be VAT exempt, advocating for case-by-case evaluations to determine the correct VAT treatment in practice.
Source lexmill
