ECJ C-535/24 (Svilosa) – Judgment – Acts by a creditor to recover debt without debtor’s mandate aren’t classified as ‘supply of services’

On October 2, 2025, the ECJ issued the judgment in the case C-535/24 (Svilosa) (not yet available in English)

Context: Reference for a preliminary ruling — Taxation — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 2(1)(c) — Supply of services for consideration — Article 24(1) — Supply of services — Article 26(1)(b) — Supply of services free of charge equivalent to the supply of services for consideration — Recovery of debt — Recovery of debts from other

Summary

Background: Svilosa AD, a Bulgarian company, faced a tax adjustment for allegedly providing services free of charge while recovering debts related to a loan to the “Mir za teb, mir za men” foundation.
Legal Question: The court sought clarification on whether debt recovery actions by a creditor without the debtor’s mandate constitute a “supply of services for consideration” under EU VAT law.
Court Decision: The Court ruled that such recovery actions do not qualify as a “supply of services for consideration” since there was no reciprocal legal relationship or mandate from the debtor.
Justification: The Court emphasized the necessity of a direct link between services provided and consideration received, which was absent in this case, thus aligning with the uniform application of VAT principles across the EU.
Implications: This ruling affirms that actions taken by creditors to recover debts, lacking a mandate from debtors, do not fall under the VAT taxable service category, ensuring clarity in VAT law interpretation.

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?

AG Opinion

None

Decision

Article 2(1)(c) and Article 26(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the classification of ‘supply of services for consideration’ or are not equivalent to that concept: within the meaning of those provisions, acts carried out by a creditor with a view to recovering his debt in a situation where those acts have been carried out without a mission or mandate on the part of the debtor.

Source

Curia

ECJ Cases referred to

C-35/20: A (Franchissement de frontières) — This case addresses the proportionality of Finnish fines imposed for crossing borders without valid travel documents. The Court found the fines disproportionate to the minor offense, setting EU principles of proportionality in sanctions under criminal and administrative law.
C-249/22: GIS — This case clarifies that a supply of services for consideration under VAT law requires a direct link between the service rendered and the payment received.
C-607/20: GE Aircraft Engine Services — Deals with VAT treatment of free-of-charge services to ensure equal treatment of private use services and consumer services.
C-653/11: Newey — Provides guidance on the definition of taxable transactions under the VAT Directive, emphasizing EU-wide uniform interpretation independent of national civil law variations.