Comments on ECJ C-535/24 (Svilosa) – VAT Deduction on Recovery Actions Not Considered Taxable Service

No deduction of input tax due to lack of supply of services for consideration

Court Ruling: The Court of Justice of the EU ruled that recovery actions carried out by a creditor (Svilosa AD) from a third party, without any instruction or power of attorney from the debtor (the foundation), do not qualify as a supply of services for consideration in favor of that debtor.
Background Context: Svilosa AD, a Bulgarian holding company, attempted to deduct input tax on legal services related to recovering funds for a benefit concert that never occurred. An audit led to an additional VAT assessment of approximately €260,000, questioning the legitimacy of the input tax deduction.
Key Findings: The Court concluded that since Svilosa did not receive any compensation from the foundation for the recovery actions and the amounts recovered were not paid in return from the foundation, these actions could not be treated as a taxable supply of services.

Case Background: A Bulgarian company provided legal support to a foundation to recover a loan it had granted, which had not been repaid. The legal services aimed to recover funds from third parties, benefiting both the foundation and the company.
Core Issue: The key question was whether the company’s actions constituted a supply of services free-of-charge to the foundation that would be subject to VAT.
Court’s Reasoning: The Court ruled that the company did not supply services free-of-charge to the foundation. It emphasized that services provided for business purposes, such as debt recovery, are not considered “for purposes other than those of the business.” The company acted in its own interest as a creditor, and therefore, there was no VATable supply of free-of-charge services.

Background of the Case: Bulgarian company Svilosa provided a loan for a benefit concert organized by a foundation. After the concert was canceled, Svilosa engaged U.S. law firms to recover payments, deducting input VAT on legal services despite not having formal instructions from the foundation.

CJEU’s Ruling: The Court of Justice of the European Union (CJEU) determined that Svilosa’s actions did not constitute a “supply of services for consideration” under the VAT Directive, as there was no legal relationship or reciprocal exchange of services with the foundation regarding the recovery efforts.
Implications of the Judgment: The CJEU emphasized that VAT concepts must align with EU law definitions, independent of national classifications. Since Svilosa’s recovery actions aimed to protect its own financial interests rather than serving the foundation, they were not subject to VAT as taxable services.

Source BTW Juriprudentie