Tax & Legal

In a most recent judgment following a preliminary request from Finland, the European Court of Justice has once again confirmed that specific fees and commissions associated with debt collection are subject to VAT.

The Supreme Tax Court has held that a factor’s liability for the VAT in a factored debt does not cease with the surrender of the proceeds of the debt collection to the original creditor.

The Supreme Tax Court has held that the sale of currently due, but doubtful, debts at their agreed market value and without further recourse to, or obligations towards, the seller is a VAT-free sale of debts, rather than a taxable debt collection.

The ECJ has held that the sale of currently due, but doubtful, debts at their agreed market value and without further recourse to, or obligations towards, the seller is a VAT-free sale of debts, rather than a taxable debt collection service.

An ECJ advocate general has suggested the purchase of a bad debt portfolio be seen as such and therefore as exempt from VAT. If, however, it is a debt collection service, the VAT basis is the difference between the purchase price and the subsequent collections.