GC VAT Case – T-233/25 (Mokoryte) – Questions – Can a subcontractor adjust VAT after claim assignment and insolvency?

Summary

Case Background: Mokoryte SRL appealed against Romanian tax authorities regarding a VAT assessment notice, tax audit report, and decision dismissing its action to annul these documents. The dispute involves subcontracting and claim assignment related to construction services provided to CBC Development Design SRL.
Legal Context: The Curtea de Apel Cluj seeks a preliminary ruling on whether Article 90 of Directive 2006/112/EC allows a subcontractor assignee to adjust the taxable amount for VAT purposes in cases of claim assignment between contractor and subcontractor.
Key Legal Provisions: The case references multiple articles from Directive 2006/112/EC and Romanian tax law, focusing on VAT adjustments due to insolvency or reorganization plans, and the assignment of claims under civil law.
Dispute Details: Mokoryte SRL claims entitlement to a VAT adjustment following CBC’s insolvency and liquidation, arguing that the assignment of claims from Modern Bau to Mokoryte should allow for VAT reduction. The tax authorities rejected this, stating the adjustment right belongs to the original service provider, Modern Bau.
Court’s Considerations: The Court of Appeal examines whether the VAT Directive permits a third-party assignee to adjust the taxable amount, considering principles of VAT neutrality and the factual context of irrecoverable claims. The court questions if excluding such adjustments exceeds necessary limits for preventing tax evasion.

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?

Source