EGC VAT Case – T-233/25 (Mokoryte) – Judgment – Subcontractor Cannot Adjust VAT for Unpaid Assigned Claim from Insolvent Developer

On April 22, 2026, the EGC issued its decision in the case T-233/25 (Mokoryte).

Context: Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Taxable amount – Reduction in case of cancellation, refusal, non-payment or reduction of the price – Article 90(1) of Directive 2006/112/EC – Acquisition by a subcontractor of a claim held by a contractor against the developer – Irrecoverable claim – Right of the subcontractor to benefit from the reduction in the taxable amount

Summary

Facts: A developer (CBC Development Design SRL) contracted a contractor (Modern Bau SRL) for construction work. The contractor then subcontracted part of the work to Mokoryte SRL (the subcontractor). The developer became insolvent and failed to pay the contractor. The contractor, in turn, failed to pay the subcontractor. To settle part of its debt, the contractor assigned its claim against the insolvent developer to the subcontractor. The developer’s insolvency proceedings closed without the debt being paid. The subcontractor then attempted to reduce its VAT taxable amount based on the non-payment of this assigned claim, arguing it was an irrecoverable debt.
Issue: Can a subcontractor, who has acquired a claim from a contractor against an insolvent developer (the ultimate beneficiary of the works), adjust its VAT taxable amount under Article 90(1) of Directive 2006/112/EC (the VAT Directive) when that assigned claim remains unpaid by the developer?
Decision: Article 90(1) of the VAT Directive precludes a subcontractor, having acquired by assignment a claim which a contractor had against a developer, from adjusting the taxable amount for VAT in the event of non-payment of that claim by the developer.
Argumentation (Subcontractor’s payment): The Court first analyzed the transaction between the subcontractor and the contractor. It found that the subcontractor’s claim against the contractor was settled in its entirety, partly by direct payment and partly by the assignment of the contractor’s claim against the developer. The Court considered this assignment as a form of remuneration with economic value, thus concluding that the subcontractor had received full consideration from the contractor. Therefore, there was no basis for a VAT reduction for the subcontractor based on its direct relationship with the contractor.
Argumentation (Right to adjustment and fiscal neutrality): The Court emphasized that the right to reduce the taxable amount under Article 90(1) is closely linked to the status of the person liable for payment of VAT for the original taxable transaction. In this case, the contractor was the taxable person who supplied services to the developer and was liable for the VAT on that transaction. The VAT Directive does not allow for the transfer of the status of “taxable person” or the right to adjustment through private law agreements like claim assignments. While upholding the principle of fiscal neutrality, the Court stated that it ensures the taxable person (the contractor, in this instance) is relieved of the VAT burden when consideration is not received, but it does not extend this right to a third-party assignee who was not the original supplier in the relevant transaction.

Article in the EU VAT Directive

Article 90 of the EU VAT Directive 2006/112/EC

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reducedafter the supply takes place, the taxable amount shall be reduced accordingly under conditionswhich shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Facts

Contractual Agreement: On November 7, 2007, Mokoryte SRL (the appellant) entered into a subcontract with Modern Bau SRL for construction works related to the ‘Global Plaza’ business center in Cluj-Napoca, with a total value of EUR 2,333,000 excluding VAT. The final beneficiary of these works was CBC Development Design SRL (CBC).
Outstanding Debt: By 2014, Modern Bau had an outstanding debt to Mokoryte arising from the subcontract. This debt was unpaid because CBC had not fulfilled its payment obligations to Modern Bau.
Claim Assignment: Following a civil judgment in September 2015, Mokoryte received partial payment of RON 270,819.76, and a notarized assignment of the remaining claim (RON 1,700,000) from Modern Bau against CBC was executed, including a property lien for security.
CBC’s Liquidation: CBC entered liquidation in December 2014, which was completed in April 2021, leading to the removal of CBC from the trade register.
VAT Refund Request: In June 2021, Mokoryte submitted a VAT refund request of RON 265,358 based on cancellation invoices issued to CBC. This request was rejected by tax authorities, who argued that the criteria for VAT adjustment under Article 287(d) of the Tax Code were not met, as Modern Bau, the direct supplier, was not undergoing liquidation.
Tax Authority’s Decision: Following the rejection of the refund, Mokoryte incurred additional VAT charges and contested the assessment notice, leading to further legal proceedings that resulted in a dismissal of its claims by the Regional Court of Cluj.
Legal Appeal: Subsequently, Mokoryte filed an appeal with the Curtea de Apel Cluj, challenging the decision of the Regional Court and arguing for the application of VAT adjustment rights based on the assignment of the claim from Modern Bau to itself, despite the lack of a direct contractual relationship with CBC.
Arguments Presented: Mokoryte contended that the tax authorities’ interpretation incorrectly restricted the ability to adjust the taxable amount for VAT purposes, given that the services rendered were ultimately for the benefit of CBC, despite the contractual relationship being with Modern Bau.

Questions

In contractual relationships followed by subcontracting, in which there is an assignment of claims between the contractor and the subcontractor with the result that the subcontractor acquires a claim against the final beneficiary of the works, does Article 90 of Directive 2006/112/EC preclude the possibility of the taxable amount for VAT purposes being adjusted by the subcontractor assignee?

AG Opinion

None

Judgment

Article 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as precluding a subcontractor, having acquired by assignment the claim which a contractor had against a developer under a works contract, from adjusting the taxable amount for value added tax in the event of non-payment of that claim by that developer.

Source

Curia

Other ECJ Cases referred to

Judgment of 9 February 2023, Euler Hermes, C‑482/21, EU:C:2023:83: This case is cited multiple times (paragraphs 28, 29, 44, 48) to support the interpretation of Article 90(1) concerning the principle of fiscal neutrality, the conditions for reducing the taxable amount, and the irrelevance of national civil law rules for claim assignments in determining the right to adjust VAT.
Judgment of 28 October 2021, X-Beteiligungsgesellschaft (VAT –Successive payments), C‑324/20, EU:C:2021:880: This case is cited in paragraphs 31 and 32 to explain the role of taxable persons as not just tax collectors, the obligation to pay VAT not being subject to prior receipt of consideration, and VAT becoming chargeable when goods or services are supplied.
Judgment of 15 October 2020, E. (VAT – Reduction of the taxable amount), C‑335/19, EU:C:2020:829: Cited in paragraphs 33 and 46, this case reinforces that the supplier remains liable for VAT even if they lose taxable person status, and can adjust the taxable amount to reflect actually received consideration. It also serves as an analogy for the principle that an assignment of a claim does not transfer the obligation to pay VAT or the right to adjust the taxable amount.
Judgment of 9 February 2023, Finanzamt X (Supplies of the owner of a stable), C‑713/21, not published, EU:C:2023:80: Cited in paragraph 35, this case is used to support the idea that a claim assignment constitutes remuneration and has economic value in itself when assessing whether consideration has been paid.
Judgment of 26 November 2020, Sögård Fastigheter, C‑787/18, EU:C:2020:964: Cited by analogy in paragraph 48, this case supports the interpretation regarding the principle of fiscal neutrality and its aim to relieve the taxable person of the VAT burden.

See also

Join the Linkedin Group on Global E-Invoicing/E-Reporting/SAF-T Developments, click HERE
Join the LinkedIn Group on ”VAT in the Digital Age” (VIDA), click HERE

Article

This judgment from the General Court addresses a crucial question regarding the right to adjust the taxable amount for VAT when a claim for payment, arising from a supply of services, is assigned to a third party (subcontractor) and subsequently becomes irrecoverable from the original debtor (developer). The Court ruled that Article 90(1) of the VAT Directive precludes a subcontractor, who acquired an irrecoverable claim from a contractor against a developer, from adjusting the taxable amount for VAT. The right to adjust the taxable amount remains with the original supplier (the contractor in this case) who was the taxable person liable for VAT on the initial supply. This decision underscores that the identity of the taxable person for VAT adjustment purposes is determined by EU VAT law, not by private law agreements like claim assignments, and reaffirms the principle that the taxable amount should reflect the consideration actually received by the original supplier.

II. Factual Background (The Dispute)

Contractual Chain:Developer (CBC Development Design SRL) contracted with Contractor (Modern Bau SRL) for a business center project.
Contractor subcontracted part of the work to Subcontractor (Mokoryte SRL).
Developer’s Insolvency: In December 2014, the Developer was declared insolvent, failing to pay the Contractor for its services.
Contractor’s Debt to Subcontractor: The Contractor owed the Subcontractor for the work performed, including VAT.
Claim Assignment: To settle a portion of its debt to the Subcontractor (RON 1,700,000 including VAT), the Contractor assigned its claim against the insolvent Developer to the Subcontractor in July 2015. The Subcontractor received partial monetary payment and the assigned claim, thereby settling the Contractor’s debt to the Subcontractor.
Irrecoverable Claim: The Developer’s insolvency proceedings concluded in April 2021 without the Developer having paid its debt, rendering the assigned claim held by the Subcontractor definitively irrecoverable.
Subcontractor’s VAT Adjustment Attempt: In December 2021, the Subcontractor issued cancellation invoices to the Developer, citing Romanian tax law (Article 287(d) of the Tax Code) for adjusting the taxable amount due to the beneficiary’s insolvency. The Subcontractor reduced its collected VAT by RON 265,358 and sought a refund.
Tax Authorities’ Refusal: The Romanian tax authorities refused the adjustment and refund, arguing that the Subcontractor’s direct beneficiary was the Contractor, not the Developer, and thus only the Contractor could claim the adjustment following the Developer’s insolvency.
Referral to EU Court: The Romanian Court of Appeal, Cluj, referred a preliminary question to the General Court regarding the interpretation of Article 90 of the VAT Directive.

III. Legal Framework

European Union Law (VAT Directive 2006/112/EC)

Article 2(1)(c): Services supplied for consideration are subject to VAT.
Article 9(1): Defines “taxable person.”
Article 63: The chargeable event occurs and VAT becomes chargeable when goods/services are supplied.
Article 73: The taxable amount includes “everything which constitutes consideration obtained or to be obtained by the supplier… in return for the supply.”
Article 90(1) (Central to the case): “In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.” This provision embodies the principle of fiscal neutrality, ensuring that the tax authorities do not collect VAT exceeding the tax actually received by the taxable person.
Article 90(2): Member States may derogate from paragraph 1 in cases of total or partial non-payment. (Not directly applied in this case, but provides context for Member State discretion).

2. Romanian Law

Article 287(d) of the Tax Code: Allows for reduction of the taxable amount for VAT where consideration cannot be collected due to the beneficiary’s insolvency.
Civil Code (Articles 1.568, 1.851, 1.852): Governs assignment of claims and works contracts/subcontracting, clarifying rights and liabilities in private law.2. Legal Question Referred

“In contractual relationships followed by subcontracting, in which there is an assignment of claims between the contractor and the subcontractor with the result that the subcontractor acquires a claim against the final beneficiary of the works, does Article 90 of [the VAT Directive] preclude the possibility of the taxable amount for VAT purposes being adjusted by the subcontractor assignee?”

3. Court’s Reasoning and Main Themes

Purpose of Article 90(1) and Fiscal Neutrality: The Court reaffirmed that Article 90(1) is a fundamental principle of the VAT Directive, intended to ensure fiscal neutrality by allowing the taxable amount to reflect the consideration actually received. The objective is to prevent tax authorities from collecting VAT exceeding what the taxable person received.

Identity of the “Taxable Person” for Adjustment:

The core of the Court’s reasoning is that the right to reduce the taxable amount is “closely linked to the status of person liable for payment of VAT for the taxable transaction in respect of which that consideration is due.” (Paragraph 33)
VAT becomes chargeable when services are supplied (Article 63), and the supplier remains liable for this VAT even if payment is not received. The taxable amount (Article 73) is based on consideration obtained by the supplier.

Two Distinct Transactions:

The Court clearly distinguishes two transactions:
- Transaction 1: Subcontractor’s supply of services to the Contractor.
- Transaction 2: Contractor’s supply of services to the Developer.
For Transaction 1: The Subcontractor’s claim against the Contractor was “settled in its entirety” (Paragraph 37) through partial cash payment and the assignment of the claim against the Developer. The assignment itself constituted consideration with economic value. Therefore, the Subcontractor had no basis to reduce the taxable amount for its own supply to the Contractor.
For Transaction 2: There was indeed a “non-payment” by the Developer to the Contractor (and subsequently, the Subcontractor as assignee), which could justify an adjustment under Article 90(1).

No Transfer of VAT Adjustment Right via Private Law Assignment:

The decisive point is that the Contractor, as the original supplier to the Developer, was the “taxable person at the time of the supply” (Paragraph 39) and “remained liable for the VAT due for the second transaction.” (Paragraph 40).
The Court explicitly states: “the VAT Directive does not contain any provision which provides for the possibility of transferring that status or the right to an adjustment by an agreement governed by private law, such as an assignment of a claim.” (Paragraph 43)
The right to adjustment is an “ancillary right in relation to the tax debt of the taxable person who is liable for payment of VAT.” (Paragraph 45).
Consequently, a private law assignment of a claim cannot transfer the original supplier’s (Contractor’s) obligation to pay VAT or its right to adjust the taxable amount to the assignee (Subcontractor).

Consistency with Fiscal Neutrality: This interpretation is deemed “consistent with the principle of fiscal neutrality” (Paragraph 48) because it ensures that the reduction is claimed by the party who originally incurred the VAT liability and whose consideration ultimately went unpaid, preventing an unjust enrichment or a double adjustment.

IV. Conclusion and Ruling

The General Court concludes that the right to adjust the taxable amount for VAT under Article 90(1) of the VAT Directive cannot be exercised by a subcontractor who has acquired an irrecoverable claim from a contractor against a developer. This right exclusively belongs to the original supplier (the contractor) who was the taxable person for the initial supply of services that gave rise to the unpaid claim.

Therefore, the Court ruled:

“Article 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding a subcontractor, having acquired by assignment the claim which a contractor had against a developer under a works contract, from adjusting the taxable amount for value added tax in the event of non-payment of that claim by that developer.”