ECJ C-535/24 (Svilosa) – Questions – Are legal services provided by aimed at collecting claims for a third-party foundation to be considered as “services”?

The ECJ released the facts & questions in the case C-535/24 (Svilosa) (not yet available in English)

Article in the EU VAT Directive

Articles 24(1) and 26(1)(b) of the EU VAT Directive 2006/112/EC.

Article 24
1. ‘Supply of services’ shall mean any transaction which does not constitute a supply of goods.

Article 26
1. Each of the following transactions shall be treated as a supply of services for consideration:
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.

Facts

Company Overview: “Svilosa” AD is a holding company based in Svishtov, Bulgaria, involved in participating in subsidiaries and managing various economic entities. It has been VAT registered since April 1, 1994.
Tax Inspection Initiation: On December 15, 2022, a tax inspection was initiated against Svilosa to determine its actual VAT and corporate tax liabilities from December 1, 2016, to December 31, 2020, for VAT, and from January 1, 2016, to December 31, 2020, for corporate tax.
Legal Services and VAT: During the inspection, it was found that Svilosa declared legal services received from U.S.-based law firms amounting to BGN 2,613,990.62 from January 1, 2016, to December 31, 2020. The company declared and deducted VAT totaling BGN 522,798.13.
Loan and Legal Proceedings: The legal services were related to a non-repaid loan provided by Svilosa for bridge financing, necessitating legal proceedings in the U.S.
Loan Agreement: The tax inspectors reviewed a bridge financing agreement with the “Mir za teb, mir za men” foundation, specifying that Svilosa would provide up to BGN 270,000 for an event by July 14, 2016, with repayment due by October 1, 2016. Later, the repayment deadline was extended to June 30, 2019, with the loan amount increased to three million leva and an 8% interest rate.
Funds Disbursement: It was found that the foundation received BGN 5,367,044.47, which was not deposited into its accounts but paid to event managers and concert organizers. The event did not take place due to no fault of the foundation.
Legal Representation: The foundation authorized Svilosa’s legal representative to act on its behalf in the U.S. legal proceedings. U.S. law firms were hired to pursue claims against defaulting parties.
Service Costs: Five U.S. law firms were engaged, and their cost estimates were accepted. The legal services were billed to Svilosa without VAT, as it is not applicable in the U.S.
VAT Self-Assessment: Svilosa self-assessed VAT on these services amounting to BGN 522,798.13, which was recorded in its accounting books and deducted.
Tax Office Findings: The tax inspectors concluded that the legal services provided to Svilosa were on behalf of the foundation and should be considered services provided for no consideration, subject to a 20% VAT based on the total direct costs of the services. Svilosa had not received any compensation for representing the foundation in the legal proceedings.

Questions

Does the concept of “service” within the meaning of Article 24(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax, or the expression “the supply of services for no consideration” within the meaning of Article 26(b) of the Directive, include legal acts or factual actions performed without an assignment or authorization by a person registered for the purposes of the common VAT system, which are directly aimed at the collection of a claim in favor of a third party and indirectly at the satisfaction of the receivable of the acting registered person from the person in whose direct interest the relevant actions are performed?

Source