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ECJ C-232/24 (Kosmiro) – AG Opinion – Factoring fees subject to VAT; direct effect of EU provisions

2 days ago
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On April 3, 2025, the ECJ issued the AG Opinion in the case C-232/24 (Kosmiro).

Context: Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/CE – Taxable transactions – Exemption relating to the granting of credit – Article 135(1)(b) – Exemption relating to financial transactions – Debt collection – Article 135(1)(d) – Trade factoring – Invoice factoring

Summary

  • Context of the Case: The case involves A Oy, a Finnish company providing factoring services, which sought clarification on the VAT treatment of commissions and fees charged in connection with its factoring activities. The case specifically examines whether these charges fall under VAT exemptions related to credit granting or debt collection.
  • Key Questions: The Advocate General addressed several questions regarding whether the factoring commission and arrangement fees should be classified as services subject to VAT, and whether they could be considered as exempt financial services under the VAT Directive.
  • Findings on Factoring Services: The AG concluded that both the factoring commission and arrangement fee are considered as remuneration for services provided under the VAT Directive, thus subject to VAT. This conclusion is based on the premise that factoring activities inherently involve the collection of debts, which aligns with the definition of taxable services.
  • Classification of Fees: The AG determined that the fees charged for trade factoring and invoice factoring constitute a single and indivisible supply related to debt collection, which is subject to VAT, rather than exempt financial services. The relationship between the factor and the client is characterized by the provision of services for consideration.
  • Direct Effect of VAT Provisions: The AG opined that the exemption related to debt collection in Article 135(1)(d) of the VAT Directive is sufficiently clear and unconditional, allowing it to have direct effect. This means that it can be invoked in national courts to challenge national laws that contradict EU VAT provisions.

Articles in the EU VAT Directive

Articles 2, 9, 135(1)(b) and 135(1)(d) of the EU VAT Directive 2006/112/EC

Article 135(1)(b) & (d)

1. Member States shall exempt the following transactions:
(b) the granting and the negotiation of credit and the management of credit by the person granting it;
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

Summary

A company (‘A Oy’) provides financial services through factoring, where it purchases receivables from its customers. The case revolves around whether certain fees charged by the company should be subject to value-added tax (VAT) and whether they fall within the scope of the VAT Directive. The referring court seeks clarification on several points:

  1. Regarding factoring by assignment of receivables, the court asks whether the financing commission charged by the company should be considered as an adjustment item for the purchase price of the claims or as another item falling outside the scope of the VAT Directive, or if it should be interpreted as consideration for a service falling within the scope of the VAT Directive.
  2. The court wants to know if the initial fixed fee charged by the company for setting up and starting the factoring process should be considered as consideration for the sale of a service falling within the scope of the VAT Directive to the customers.
  3. If the fees mentioned in points 1 and 2 above are considered consideration for a service falling within the scope of the VAT Directive, the court asks whether they should be regarded as consideration for the exempt sale of a service under Article 135(1)(b) or Article 135(1)(d) of the VAT Directive, or if they should be considered as consideration for the collection of debts subject to VAT or another service subject to VAT.
  4. In the case of invoice financing factoring, where the company provides financing using the invoiced receivables of its customers as security, the court asks whether the financing commission and the initial fee should be regarded at least in part as consideration for the exempt sale of a service under Article 135(1)(a)(b) or Article 135(1)(d) of the VAT Directive, or if they should be considered as consideration for the collection of debts subject to VAT or another service subject to VAT.
  5. If the financing commission or initial fee charged in the context of factoring via assignment of claims or via invoice financing is considered as consideration for a service subject to VAT, the court seeks clarification on whether the taxability of this service under the VAT Directive is clear and unconditional, and whether it should be given direct effect at the request of the taxable person, even if there is an exemption under national VAT law for the provision of loans and other forms of financing.

Facts & Background

Facts:

The appellant is company ‘A Oy’, and provides financial services. The company’s business customers are active in sectors where receivables have a short turnaround time, where the business customer wants immediate access to the expected funds. To this end, the company (the factor) works with factoring via pledging, whereby credit is granted to a customer in exchange for outstanding receivables. There is also factoring via assignment of receivables, where the factor undertakes to purchase the invoiced receivables from the customer. The defendant is the Central Tax Commission and states that this method of factoring is subject to VAT insofar as it constitutes consideration for services in the field of management and collection of receivables.

Consideration:

According to the referring court, factoring via invoice financing falls within the scope of the VAT Directive. However, it is not clear to him how the exemption provisions of this directive should be interpreted in this context. The referring court seeks, inter alia, clarification as to whether it can be assumed that the factor purchasing the receivables from its client simultaneously sells to that client services which partly fall within the scope of that directive. He also wants an explanation about the financing commission that constitutes a consideration for providing the credit, and whether and where this fits into Article 135 of the VAT Directive.

Questions

Where a factoring company acquires from a client invoiced debts not yet due so that the default risk relating to those debts is transferred from that client to that company (factoring taking the form of a sale of debts, ‘trade factoring’):

(a)    is the factoring commission which is charged by that company consisting of a percentage of each invoiced debts covered by the agreement, to be regarded as an adjustment to the purchase price of the acquisition of the debts or as another item outside the scope of the VAT Directive, 1 or

(b)    are Articles 2(1)(c) and 9 of the VAT Directive to be interpreted as meaning that that same company provides its client, in return for the factoring commission referred to in question 1(a) above, with a supply of services for reward falling within the scope of the VAT Directive?

Is the fixed arrangement fee which is charged to the client for setting up and activating the factoring arrangement in the context of trade factoring to be regarded as a consideration for the supply to the client of a service falling within the scope of the VAT Directive?

Where the fees referred to in questions 1 and 2 above which are charged in the context of trade factoring are to be regarded as a consideration for a supply of services falling within the scope of the VAT Directive:

(a)    is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission or the arrangement fee charged to the client are to be regarded as consideration for the supply of a tax-exempt service, or

(b)    is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or, as the consideration for another taxable service?

Where a factoring company finances its client by granting it credit so that that client’s invoiced debts is used as collateral for the finance provided by that company (factoring taking the form of financing guaranteed by invoices, ‘invoice factoring’):

(a)    is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission charged to the client, consisting of a percentage of each invoiced debt covered by the agreement, and the fixed arrangement fee for setting up and activating the factoring agreement must be regarded, at least in part, as a consideration for the supply of a tax-exempt service, or

(b)    is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or the consideration for another taxable service?

If the factoring commission or arrangement fee charged in the context of trade factoring or invoice factoring is to be wholly regarded, on the basis of the answer to question 3 or 4 above, as the consideration for a taxable service-, is the taxation of that service in application of the VAT Directive so clear and unconditional such that, where the taxable person so requests, that taxation be recognised as having direct effect even though the exemption from VAT provided for by the national VAT law covers, besides the granting of credit, other financing arrangements?

Source 

Cited Case law

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