Comments on ECJ C-232/24 (Kosmiro): Where does credit end and debt collection begin?

Kosmiro Judgment Overview: The Court of Justice ruled on 23 October 2025 that both assignment and pledge-based factoring are considered a single service primarily aimed at collecting receivables, thus subjecting them to VAT, regardless of their legal classification.
Court’s Assessment: The Court clarified that the financing commission and set-up fee for factoring services are both subject to VAT. It emphasized that the economic reality of the service determines its VAT treatment, rejecting any artificial separation between credit granting and collection functions.
Implications for Belgium: The ruling sharpens the distinction between taxable collection services and potentially exempt credit services in Belgium. The local tax administration’s response to this stricter interpretation of VAT applicability in factoring will be crucial for future compliance and administrative practices.

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Factoring services subject to VAT

VAT Classification of Fees: The Court of Justice of the European Union ruled that both the financing fee and the initial fee charged by A Oy for its factoring services are considered part of a single, indivisible service of ‘debt collection’ that is subject to VAT.
Rejection of Tax Exemptions: The court disagreed with the Finnish Central Tax Commission’s position that the financing commission should be VAT-exempt and that the initial fee should be split into VAT-exempt and VAT-taxable portions, affirming that all fees are taxable under the VAT Directive.
Applicability to Factoring Variants: The ruling applies to both types of factoring services offered by A Oy—factoring via assignment of receivables and factoring via pledging—confirming that the fees associated with these services fall within the scope of VAT obligations.

Both factoring but also invoice financing subject to VAT

VAT Treatment of Factoring Services: The Court of Justice of the European Union (CJEU) ruled that both factoring by assignment of receivables and factoring by pledging of receivables constitute a single indivisible service primarily aimed at debt recovery, which is subject to VAT. This decision clarifies that the fees associated with these factoring services are considered remuneration for a taxable service rather than being classified as exempt financial services.
Clarification on Error Classifications: The CJEU emphasized that the nature of the fees, such as the financing commission and initial fee, does not adjust the purchase price of the receivables but represents payment for the service of debt collection. It highlighted that the essential purpose of both variants of factoring is to outsource the management and collection of debts, reinforcing that this activity falls within the VAT framework.
Implications for Dutch Practice: The ruling aligns with the Dutch Factoring Decree, confirming that traditional factoring agreements are VAT-taxed services. However, it raises questions about the VAT treatment of invoice financing and other similar solutions, suggesting that as long as debt collection is outsourced, such services are likely to be subject to VAT, necessitating a case-by-case assessment for compliance and VAT treatment.