C-232/24 Kosmiro

JUDGMENT OF THE COURT (First Chamber)

23 October 2025 ( *1 )

(Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Taxable transactions – Exemption relating to the granting of credit – Article 135(1)(b) – Exemption relating to financial transactions – Debt collection – Article 135(1)(d) – Trade factoring – Invoice factoring)

In Case C‑232/24 [Kosmiro], ( i )

REQUEST for a preliminary ruling under Article 267 TFEU from the Korkein hallinto-oikeus (Supreme Administrative Court, Finland), made by decision of 22 March 2024, received at the Court on 27 March 2024, in the proceedings brought by

A Oy,

intervening party:

Veronsaajien oikeudenvalvontayksikkö,

THE COURT (First Chamber),

composed of F. Biltgen, President of the Chamber, T. von Danwitz, Vice-President of the Court, acting as Judge of the First Chamber, I. Ziemele, A. Kumin and S. Gervasoni (Rapporteur), Judges,

Advocate General: A. Rantos,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

A Oy, by H. Jovio, asianajaja,

the Finnish Government, by A. Laine, acting as Agent,

the European Commission, by P. Carlin and T. Sevón, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 3 April 2025,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 2(1)(c), Article 9(1) and Article 135(1)(b) and (d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

2The request has been made in proceedings relating to the treatment for value added tax (VAT) purposes of various fees and commissions charged by the company A Oy, the applicant in the main proceedings in connection with factoring activities carried out by it.

Legal context

European Union law

3Article 1(2) of the VAT Directive stipulates:

‘The principle of the common system of VAT entails the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, however many transactions take place in the production and distribution process before the stage at which the tax is charged.

On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.

…’

4Article 2 of that directive provides:

‘(1) The following transactions shall be subject to VAT:

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

…’

5Under Article 9 of that directive:

‘(1) “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis is to be regarded as an economic activity.

…’

6Article 135(1) of the VAT Directive reads as follows:

‘Member States shall exempt the following transactions:

…

the granting and the negotiation of credit and the management of credit by the person granting it;

…

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

…’

Finnish law

7Point 1 of the first subparagraph of Paragraph 1 of the arvonlisäverolaki (1501/1993) (Law on value added tax (1501/1993)) of 30 December 1993 (‘the Law on VAT’) provides:

‘VAT shall be levied for the benefit of the State in accordance with the rules laid down in this Law:

on the sale of goods or services that takes place in Finland in the course of business.’

8Under the second subparagraph of Paragraph 18 of that law:

‘Sale of a service means the supply or other transfer of a service for consideration.’

9Paragraph 41 of that law states:

‘VAT shall not be payable on the sale of a financial service.’

10Points 2 and 3 of the first subparagraph of Paragraph 42 of the Law on VAT provides:

‘The following shall be regarded as financial services:

…

the granting of credit and any other financing arrangements;

the management of credit by the person granting it.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

11The applicant in the main proceedings is a Finnish company which provides factoring services. Its clients call on it to provide immediate access to funds corresponding to debts not yet due while transferring responsibility for the corresponding collection operations to it. The debts which are the subject of factoring are uncontested debts.

12The applicant in the main proceedings carries out, first, invoice factoring, which takes the form of credit granted to its clients and corresponds to invoiced debts, up to a limit of a total amount determined on the basis of the level of risk presented by the activity of those clients. In that context, the applicant in the main proceedings is responsible for payment reminders and for the extrajudicial collection of the debts assigned to it. Second, it offers trade factoring services, in the form of the purchase from its clients of selected invoices, up to a maximum amount, defined on the basis of an assessment of the risk posed by the activity of those clients. The Korkein hallinto-oikeus (Supreme Administrative Court, Finland), which is the referring court, states that, unlike invoice factoring, in which the default risk continues to be borne by the client, trade factoring involves the assignment of the debts to the factor and therefore the transfer of the risk of payment default to the factor.

13The contracts between the applicant in the main proceedings and its clients provide that it is to collect various fees and commissions from them, including a ‘factoring commission’, which is paid in advance and represents a percentage of each debt. The level of that commission increases the lower the credit rating of the client and the persons in respect of whom it holds the debts concerned, on the one hand, and, on the other hand, the longer the invoice payment term. ‘Arrangement fees’ and various other expenses and fees are added to that commission.

14The Keskusverolautakunta (Central Tax Authority, Finland) sent the applicant in the main proceedings an advance tax ruling covering the period from 25 October 2022 to 31 December 2023, stating that the commissions and fees received by the applicant in respect of its invoice and trade factoring were subject to VAT in so far as they constituted consideration for a service entailing management and debt collection in respect of invoices. That tax authority, by contrast, took the view that the factoring commission and various other costs and fees constituted in part consideration for a VAT-exempt financial service.

15More specifically, the Central Tax Authority took the view that, since the applicant in the main proceedings manages invoice debts, monitors the payments made in that respect and assumes responsibility for the debt recovery, invoice factoring and trade factoring both constitute services subject to VAT. However, in so far as the applicant in the main proceedings provides financing to its clients within a customised limit, that authority took the view that certain costs and fees, including the factoring fee, were paid by way of consideration for a tax-free financial service relating to the granting of credit, and that the arrangement fees had, for their part, to be split into a part subject to VAT and a part exempt from VAT, corresponding to setting up and activating the financial arrangements guaranteed by debts in respect of invoices.

16The applicant in the main proceedings brought an action before the referring court seeking the partial annulment of that ruling, taking the view that the factoring commission and the other expenses and fees were, in their entirety, subject to VAT. At most, in its view, only the ‘underwriting fee’, which represents a percentage of the finance limit that may be made available to each client, can constitute consideration for a VAT-exempt financial service.

17That court states that, according to the applicant in the main proceedings, trade factoring cannot be treated in the same way as the granting of credit since, in that context, the factor purchases debts from its clients, with the result that they have no further debt with regard to it and the contract between them and the applicant in the main proceedings is performed in full.

18For its part, the referring court takes the view that invoice factoring must be regarded as a supply of services for consideration falling within the scope of the VAT Directive. However, that court has doubts as to how the various fees and commissions charged for the service provided must be treated in the light of that tax.

19As regards commissions and fees relating to trade factoring, the referring court asks in particular whether a trader carrying out such an activity must be regarded at the same time as selling to its client services which fall within the scope of the VAT Directive.

20In the light of the judgments of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377), and of 27 October 2011, GFKL Financial Services (C‑93/10, EU:C:2011:700), the referring court asks, more specifically, what conclusions must be drawn from the fact that the case before it does not concern outstanding debts but debts which are due, and from whether a particular fee was specifically agreed between the parties or whether that fee was directly taken into account in the purchase price of the debts. It notes that the fact that the factoring commission depends on the payment term of the invoiced debts could lead to the conclusion that that commission partly constitutes interest and, on that basis, it constitutes consideration for a financial service. Alternatively, that commission could be regarded as an adjustment designed to adapt the purchase price of the debt to its real economic value.

21The referring court also draws the Court’s attention to the fact that, in the case of trade factoring, the ownership of the claims is transferred, together with the default risk, to the assignee company, in the present case the applicant in the main proceedings, after which it no longer receives interest or other payment from the client from which it acquired the debt.

22According to that court, factoring could constitute a financing service consisting partly of the granting of credit, since that service is not linked to the service of managing or collecting debts that is subject to VAT to the point of constituting a single and indivisible supply. That is true, in particular, in the case of invoice factoring.

23The referring court states that Finnish law, namely point (2) of the first subparagraph of Paragraph 42 of the Law on VAT, states that not only the granting of credit but also other financing arrangements are to be regarded as exempt from that tax, whereas the latter are not referred to in the VAT Directive.

24It follows that, if the exemption relating to the granting of credit provided for by the VAT Directive were to be interpreted as not applying to the commissions and fees at issue in the present case, the referring court considers that it might not be possible to interpret the national law in conformity with that directive. In that event, it would have to determine whether the relevant provisions of that directive have direct effect.

25Lastly, that court states that its order for reference concerns only the factoring commission and arrangement fees, since the analysis of the VAT treatment of those sums is sufficient to enable it to determine how the other costs and fees at issue should be treated.

26In those circumstances, the Korkein hallinto-oikeus (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Where a factoring company acquires from a client invoiced debts not yet due so that the default risk relating to those debts is transferred from that client to that company (factoring taking the form of a sale of debts, “trade factoring”):

is the factoring commission which is charged by that company consisting of a percentage of each invoiced debt covered by the agreement, to be regarded as an adjustment to the purchase price of the acquisition of the debts or as another item outside the scope of the VAT Directive, or

are [Article 2(1)(c) and Article] 9 of the VAT Directive to be interpreted as meaning that that same company provides its client, in return for the factoring commission referred to in question 1(a) above, with a supply of services for reward falling within the scope of the VAT Directive?

Is the fixed arrangement fee which is charged to the client for setting up and activating the factoring arrangement in the context of trade factoring to be regarded as a consideration for the supply to the client of a service falling within the scope of the VAT Directive?

Where the fees referred to in questions 1 and 2 above which are charged in the context of trade factoring are to be regarded as a consideration for a supply of services falling within the scope of the VAT Directive:

is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission or the arrangement fee charged to the client are to be regarded as consideration for the supply of a tax-exempt service, or

is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or the consideration for another taxable service?

Where a factoring company finances its client by granting it credit so that that client’s invoiced debts [are] used as collateral for the finance provided by that company (factoring taking the form of financing guaranteed by invoices, “invoice factoring”):

is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission charged to the client, consisting of a percentage of each invoiced debt covered by the agreement, and the fixed arrangement fee for setting up and activating the factoring agreement must be regarded, at least in part, as a consideration for the supply of a tax-exempt service, or

is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or the consideration for another taxable service?

If the factoring commission or arrangement fee charged in the context of trade factoring or invoice factoring is to be wholly regarded, on the basis of the answer to [the third and fourth questions], as the consideration for a taxable service, is the taxation of that service in application of the VAT Directive so clear and unconditional such that, where the taxable person so requests, that taxation be recognised as having direct effect even though the exemption from VAT provided for by the national VAT law covers, besides the granting of credit, other financing arrangements?’

Consideration of the questions referred

The first and second questions

27By its first and second questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 2(1)(c) and Article 9(1) of the VAT Directive must be interpreted as meaning that, as regards trade factoring, in the context of which the factor relieves the client of debt recovery operations and of the risk of the debts not being paid, the factoring commission and the arrangement fee paid by the client must be regarded as remunerating a supply of services falling within the scope of that directive.

28It must be recalled, first of all, that the VAT Directive establishes a common system of VAT based on, inter alia, a uniform definition of taxable transactions (judgment of 7 November 2024, Lomoco Development and Others, C‑594/23, EU:C:2024:942, paragraph 33 and the case-law cited).

29Under Article 2(1)(c) of the VAT Directive, the supply of services for consideration by a taxable person acting as such is to be subject to VAT.

30Article 9(1) of the VAT Directive attributes a very wide scope to VAT, by giving the concept of ‘taxable person’ a broad definition focused on independence in the exercise of an ‘economic activity’, which is itself defined broadly, in the second subparagraph of Article 9(1) of that directive, as comprising all activities of producers, traders and persons supplying services and, in particular, the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. It is the existence of such an activity which establishes the status of ‘taxable person’ (judgment of 3 April 2025, Grzera, C‑213/24, EU:C:2025:238, paragraph 18 and the case-law cited).

31Furthermore, according to the case-law of the Court, a supply of services is carried out for consideration, within the meaning of Article 2(1)(c) of the VAT Directive, and is therefore subject to VAT only if there exists between the service supplier and the recipient a legal relationship in which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient (judgments of 11 July 2024, Finanzamt T II, C‑184/23, EU:C:2024:599, paragraph 30, and of 28 November 2024, rhtb, C‑622/23, EU:C:2024:994, paragraph 16 and the case-law cited).

32In interpreting the provisions of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), worded in terms substantially identical to those of Article 2(1)(c) of the VAT Directive, the Court has already held, on grounds which are capable of being applied to the VAT Directive, that a true factoring activity, taking the form of purchase by the factor of debts owed to his client without enjoying a right of recourse against that client, in a situation where the relationship between the factor and the client is governed by a contract under which there is reciprocal performance consisting for the factor, in relieving the client of the debt recovery operations and of the risk of the debts not being paid and, for the client, in return for the service received by him in making a payment corresponding to the difference between the face value of the debts which he or she has assigned to the factor and the amount paid by the factor for the purchase of those debts, constitutes a supply of services for consideration (see, to that effect, judgment of 26 June 2003, MKG-Kraftfahrzeuge-Factoring, C‑305/01, EU:C:2003:377, paragraphs 48 and 49).

33Since trade factoring such as that at issue in the main proceedings has, in essence, the same characteristics as the ‘true’ factoring described in the preceding paragraph of the present judgment, it must be held that services supplied in that context constitute the supply of services for consideration within the meaning of Article 2(1)(c) of the VAT Directive.

34The judgment of 27 October 2011, GFKL Financial Services (C‑93/10, EU:C:2011:700) cannot call that finding into question. In paragraph 26 of that judgment, the Court held that an individual sale of mature but defaulted debts, the price of which reflected not the remuneration for a service provided but the actual economic value of those debts, which had fallen below their face value, did not fall within the scope of VAT. By contrast, trade factoring activity such as that at issue in the main proceedings concerns debts which are not due, in respect of which there is nothing a priori to suggest that they will not be repaid in full by the debtors, and is characterised by the provision of a service consisting, for the assignee, in assuming responsibility for collection and the risk associated with those debts in return for the payment of remuneration by the assignor.

35Nor can such an activity of trade factoring be treated in the same way as a mere transaction involving the acquisition and holding of shares outside the scope of application of VAT, since the factor does not act as the passive owner of the debts purchased but does indeed provide his or her client with a service consisting in the assumption, for remuneration, of the risk of default by the debtor (see, to that effect, judgment of 20 June 1991, Polysar Investments Netherlands, C‑60/90, EU:C:1991:268, paragraph 13).

36As regards the question whether, in the context of trade factoring such as that at issue in the main proceedings, the factoring commission and the arrangement fees paid to the factor by its client constitute the value actually given in return for the services falling within the scope of the VAT Directive, it should be noted, in the first place, that it is apparent from the order for reference that the factoring commission represents a percentage of the amount of the debts, the level of which depends not on the assessment, as such, of the economic value of those debts but on the credit rating attributed to them and the length of the remaining payment term.

37In view of those characteristics, it does not appear that such a commission corresponds to an adjustment of the purchase price of the debts to their real economic value. Rather, that commission must be regarded as consideration for the debt collection service provided by the factor to the client, the value of which increases the longer the payment term and the greater the level of risk assumed by the factor.

38It must be noted, in the second place, that it is apparent from the order for reference that the arrangement fees correspond to a flat-rate fee paid by the client for setting up the factoring process, covering, inter alia, the cost of procedures relating to compliance with obligations arising from the applicable legislation on money laundering. Such fees must therefore be regarded as consideration for the setting up and activation of the service supplied by the factor.

39Subject to the verifications to be carried out by the referring court, it must therefore be held that the factoring commission and the arrangement fees paid to the factor by its client in the context of a trade factoring activity must be regarded as constituting the value actually given in return for the service supplied and, consequently, fall within the scope of the VAT Directive.

40In the light of the foregoing, the answer to the first and second questions is that Article 2(1)(c) and Article 9(1) of the VAT Directive must be interpreted as meaning that, as regards trade factoring, in the context of which the factor relieves the client of debt recovery operations and of the risk of the debts not being paid,

the factoring commission paid for a debt collection service the value of which increases the longer the payment term and the greater the level of risk assumed by the factor and

the arrangement fees paid by the client, which correspond to the flat-rate amount paid in order to set up the factoring process and which cover, inter alia, the cost of procedures relating to compliance with the obligations arising from the applicable legislation on money laundering,

constitute the value actually given in return for the supply of services falling within the scope of that directive.

The third and fourth questions

41By its third and fourth questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 135(1)(b) and (d) of the VAT Directive must be interpreted as meaning that the factoring commission and the arrangement fees paid by the client and received by the factor in the context of a trade factoring activity constitute consideration for a single and indivisible debt collection service that is subject to VAT, or whether they must, at least in part, be regarded as remuneration for a service exempt from VAT relating to the granting of credit.

42Under Article 135(1)(b) of the VAT Directive, the granting and the negotiation of credit and the management of credit by the person granting it are exempt from VAT.

43The granting of credit, within the meaning of that provision, consists, inter alia, in the provision of capital against remuneration (judgment of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O, C‑250/21, EU:C:2022:757, paragraph 33 and the case-law cited).

44Article 135(1)(d) of that directive, for its part, provides that transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection are also exempt from VAT.

45According to the Court’s settled case-law, the exemptions referred to in Article 135(1) of the VAT Directive constitute autonomous concepts of EU law which are intended to avoid divergences in the application of the VAT system of one Member State to another (judgment of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O, C‑250/21, EU:C:2022:757, paragraph 30 and the case-law cited).

46It is also apparent from the Court’s settled case-law that the terms used to specify the exemptions provided for in that article are to be interpreted strictly, since they constitute exceptions to the general principle that that tax is to be levied on all services supplied for consideration by a taxable person (judgment of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O, C‑250/21, EU:C:2022:757, paragraph 31 and the case-law cited).

47However, the interpretation of the terms of those exemptions must be consistent with the objectives pursued by those exemptions and comply with the requirement of fiscal neutrality inherent in the common system of VAT (judgment of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O, C‑250/21, EU:C:2022:757, paragraph 32 and the case-law cited).

48In the absence of a definition of the concept of ‘debt collection’ in the VAT Directive, contained in Article 135(1)(d) of that directive, it is necessary to view that concept in its context and to interpret it in the light of the spirit thereof and, more generally, of the scheme of that directive (see, to that effect, judgment of 28 October 2010, Axa UK, C‑175/09, EU:C:2010:646, paragraph 29 and the case-law cited).

49In that regard, although, as recalled in paragraph 46 of the present judgment, the exemptions referred to in Article 135(1) of the VAT Directive, which derogate from the general application of that tax, are to be interpreted strictly, the concept of ‘debt collection’, as an exception to such a provision derogating from the application of VAT, with the consequence that the transactions which it covers are subject to taxation in accordance with the fundamental rule forming the basis of the VAT Directive, must, for its part, be interpreted broadly (see, to that effect, judgment of 28 October 2010, Axa UK, C‑175/09, EU:C:2010:646, paragraph 30 and the case-law cited).

50According to the case-law, the concept of ‘debt collection’, within the meaning of Article 135(1)(d) of the VAT Directive, refers to financial transactions designed to obtain payment of a pecuniary debt (judgment of 28 October 2010, Axa UK, C‑175/09, EU:C:2010:646, paragraph 31 and the case-law cited).

51The Court has stated that that concept must be interpreted as encompassing all forms of factoring, irrespective of the manner in which they are carried out, given that, by its objective nature, the essential purpose of factoring is the recovery and collection of debts owed by a third party. There is no reason to justify different treatment, for VAT purposes, between ‘true’ factoring and ‘quasi-factoring’ since, in both cases, the factor makes supplies to the client for consideration and accordingly pursues an economic activity (see, to that effect, judgment of 26 June 2003, MKG-Kraftfahrzeuge-Factoring, C‑305/01, EU:C:2003:377, paragraphs 76 and 77).

52As recalled in paragraph 33 of the present judgment, trade factoring such as that at issue in the main proceedings has the same characteristics as the ‘true’ factoring which was at issue in the case giving rise to the judgment of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377). As was held in that judgment, such an activity must be regarded as falling within the concept of ‘debt collection’ contained in Article 135(1)(d) of the VAT Directive.

53The same applies to invoice factoring as carried out by the applicant in the main proceedings. Since the Court held, in the judgment of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377), that ‘quasi-factoring’ must be regarded as falling within the concept of ‘debt collection’, invoice factoring, which differs from trade factoring only by the fact that the debts held by the client are not transferred to the factor but used as security for the financing provided by the factor to the client, the factor taking responsibility for the remainder of the recovery and collection of those debts, must also be regarded as falling within that concept.

54However, in order to answer the questions raised by the referring court, it is still necessary to determine whether the factoring commission and the arrangement fees constitute consideration for a single and indivisible supply of debt collection subject to VAT, or whether they remunerate in part a separate supply of credit, covered by the VAT exemption laid down in Article 135(1)(b) of the VAT Directive.

55In that regard, it is clear from the Court’s case-law that, where a transaction comprises a bundle of elements and acts, regard must be had to all the circumstances in which the transaction in question takes place in order to determine whether that operation gives rise, for the purposes of VAT, to two or more distinct supplies or to one single supply (judgment of 4 September 2019, KPC Herning, C‑71/18, EU:C:2019:660, paragraph 35).

56The Court has also held, first, that it follows from the second subparagraph of Article 1(2) of the VAT Directive that every transaction must normally be regarded as distinct and independent and, second, that a transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system (judgment of 4 September 2019, KPC Herning, C‑71/18, EU:C:2019:660, paragraph 36).

57Accordingly, in certain circumstances, several formally distinct services, which could be supplied separately and thus give rise, separately, to taxation or exemption, must be considered to be a single transaction when they are not independent (judgment of 4 September 2019, KPC Herning, C‑71/18, EU:C:2019:660, paragraph 37).

58In that regard, it is apparent from the case-law of the Court that a supply must be regarded as a single supply where two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. That is also the case where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which share the tax treatment of the principal supply. In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute, for customers, an end in itself but a means of better enjoying the principal service supplied (judgment of 4 September 2019, KPC Herning, C‑71/18, EU:C:2019:660, paragraph 38).

59In order to determine whether the services supplied constitute independent services or a single service, it is necessary to examine the characteristic elements of the transaction concerned. However, there is no absolute rule for determining the extent of a service for VAT purposes and in order to do this, all the circumstances in which the transaction concerned takes place must, therefore, be taken into account (judgment of 4 September 2019, KPC Herning, C‑71/18, EU:C:2019:660, paragraph 39 and the case-law cited). The Court also takes into account the economic objective thus pursued and the interests of the recipients of the supplies (see, to that effect, judgment of 17 December 2020, Franck, C‑801/19, EU:C:2020:1049, paragraph 26 and the case-law cited).

60In that regard, it should be noted that, from the point of view of both the client and the factor, a supply of factoring services constitutes, in principle, a single economic transaction, the main purpose of which is to enable the client to transfer responsibility to a third party for the recovery and collection of its debts, which it would be artificial to split.

61In addition, as regards, more specifically, trade factoring, the funds paid by the factor to its client do not correspond to a loan which the latter would have to repay, but constitute consideration for the final sale of debts, with the result that there is no credit relationship between the factor and the client. Consequently, the factoring commission and the arrangement fees paid in that context cannot be regarded as remunerating a supply of credit covered by the exemption provided for in Article 135(1)(b) of the VAT Directive, but constitute, in the light of the considerations set out in paragraphs 32, 33, 38 and 39 of the present judgment, consideration for taxable debt collection services, within the meaning of Article 135(1)(d) of that directive.

62As regards invoice factoring, while it entails the provision of funds by the factor to its client, in return for security consisting of debts in respect of invoices not yet due, it has been observed in paragraph 53 of the present judgment that, otherwise, the factor is responsible for the recovery and collection of the debts, which, according to the case-law referred to in paragraph 51 of the present judgment, constitutes the essential aim of factoring.

63Moreover, although, in the context of the provision of that service, the recovery of debts by the factor is accompanied by the provision, by the factor to its client, of financing corresponding to the amount of the debts offered as security, it does not appear that such financing is, in practice, provided by the factor independently of the debt collection service, of which it is the corollary.

64It is true that the Court has already acknowledged that the concept of the granting of credit, within the meaning of Article 135(1)(b) of the VAT Directive, is not limited solely to loans and credit granted by banking and financial institutions, and that it does not exclude forms of remuneration other than the payment of interest (see, to that effect, judgment of 15 May 2019, Vega International Car Transport and Logistic, C‑235/18, EU:C:2019:412, paragraphs 44, 45, 47 and 48 and the case-law cited). It has also held that that provision applies to a transaction which consists in the making available of funds obtained from a factoring company by one taxable person to another taxable person, for remuneration, following the transmission to the latter of a bill of exchange issued by the second taxable person, the first taxable person guaranteeing the repayment to the factoring company of that bill of exchange at its maturity (judgment of 17 December 2020, Franck, C‑801/19, EU:C:2020:1049, paragraph 53).

65The fact remains that the solution adopted in the judgment of 17 December 2020, Franck (C‑801/19, EU:C:2020:1049), cannot be applied in the present case, since, in particular, that judgment concerned the particular configuration of a tripartite relationship in which a factor had been called upon for the sole purpose, for a company, of obtaining financing by circumventing the impossibility of taking out a bank loan.

66Nor does it appear relevant, in the context of the present case, the solution adopted in the judgment of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O (C‑250/21, EU:C:2022:757), which concerned the VAT treatment of a mechanism used in the field of securitisation or structured financing the essential purpose of which was the provision of capital against remuneration, in the form of services provided under a sub-participation agreement, consisting of providing the originator with a financial contribution in return for the payment of the proceeds from specific debts, which remained part of that originator’s assets.

67Lastly, the Finnish Government’s argument that all financing arrangements should be treated in the same way for VAT purposes cannot be accepted since, by distinguishing the tax treatment, with regard to that tax, of debt collection services and of services for the granting of credit, the EU legislature itself provided for the possibility of co-existence of financing arrangements subject to VAT and financing arrangements exempt from VAT.

68It follows that the factoring commission and the arrangement fees paid by the client in the context of invoice factoring, which is characterised by the fact that the factor is responsible for the recovery and collection of the debts concerned which, without being transferred to that factor, are used as security for the financing provided by it to the client, must be regarded as constituting consideration for a single and indivisible supply of ‘debt collection’ subject to VAT.

69In the light of the foregoing, the answer to the third and fourth questions is that Article 135(1)(b) and (d) of the VAT Directive must be interpreted as meaning that

the factoring commission paid for a debt collection service the value of which increases the longer the payment term and the greater the level of risk assumed by the factor and

the arrangement fees paid by the client, which correspond to the flat-rate amount paid in order to set up the factoring process and which cover, inter alia, the cost of procedures relating to compliance with the obligations arising from the applicable legislation on money laundering

charged by the factor in the context of trade factoring such as that referred to in the answer to the first and second questions or invoice factoring, which is characterised by the fact that the factor undertakes the recovery and collection of the debts concerned which, without being transferred to that factor, are used as security for the financing provided by the factor to the client, constitute consideration for a single and indivisible service of ‘debt collection’, subject to VAT.

The fifth question

70By its fifth question, the referring court asks, in essence, whether, if the exception relating to debt collection provided for in Article 135(1)(d) of the VAT Directive applies to factoring services such as those at issue in the main proceedings, that exception is unconditional and sufficiently precise to have direct effect.

71In accordance with the Court’s settled case-law, whenever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise, they may be relied upon before the national courts by individuals against the State where the State has transposed the directive incorrectly (judgment of 8 March 2022, Bezirkshauptmannschaft Hartberg-Fürstenfeld (Direct effect), C‑205/20, EU:C:2022:168, paragraph 17 and the case-law cited).

72It should also be borne in mind that a provision of EU law is, first, unconditional where it sets forth an obligation which is not qualified by any condition, or subject, in its implementation or effects, to the taking of any measure either by the institutions of the European Union or by the Member States and, second, sufficiently precise to be relied on by an individual and applied by a court where it sets out an obligation in unequivocal terms (judgment of 8 March 2022, Bezirkshauptmannschaft Hartberg-Fürstenfeld (Direct effect), C‑205/20, EU:C:2022:168, paragraph 18 and the case-law cited).

73In the first place, as regards the unconditional nature of the exemption relating to debt collection set out in Article 135(1)(d) of the VAT Directive, it is apparent from its wording that that provision is unconditional since its application is not subject to additional conditions or the adoption of implementing acts.

74In the second place, in so far as it provides for that exemption, Article 135(1)(d) establishes, in unequivocal terms, an obligation on the Member States, without those States having any discretion and must therefore be regarded as sufficiently precise within the meaning of the case-law referred to in paragraph 72 of the present judgment.

75It follows that the exception relating to debt collection laid down in Article 135(1)(d) of the VAT Directive has direct effect and may therefore be relied on by individuals before the national courts against the State.

76In that context, it should further be recalled that, in order to ensure the effectiveness of all provisions of EU law, the primacy principle requires, inter alia, national courts to interpret, to the greatest extent possible, their national law in conformity with EU law, it being specified that that obligation to interpret in a manner consonant with EU law may not, in particular, serve as a basis for an interpretation of national law contra legem (see, to that effect, judgment of 8 March 2022, Bezirkshauptmannschaft Hartberg-Fürstenfeld (Direct effect), C‑205/20, EU:C:2022:168, paragraphs 35 and 36 and the case-law cited).

77It should also be borne in mind that the principle of primacy places the national court which is called upon within the exercise of its jurisdiction to apply provisions of EU law under a duty, where it is unable to interpret national legislation in compliance with the requirements of EU law, to give full effect to the requirements of that law in the dispute before it, if necessary disapplying of its own motion any national legislation or practice, even if adopted subsequently, which is contrary to a provision of EU law with direct effect, and it is not necessary for that court to request or await the prior setting aside of such national legislation or practice by legislative or other constitutional means (judgment of 8 March 2022, Bezirkshauptmannschaft Hartberg-Fürstenfeld (Direct effect), C‑205/20, EU:C:2022:168, paragraph 37).

78It will be for the referring court to determine whether compliance with that exception can be ensured in the context of an interpretation in conformity with EU law of the provisions of domestic law or, in the absence of such a possibility, whether it entails setting aside all or part of those provisions.

79It follows from the foregoing that the answer to the fifth question is that Article 135(1)(d) of the VAT Directive must be interpreted as meaning that the exception relating to debt collection, provided for in that provision, is unconditional and sufficiently precise to have direct effect and, therefore, may be relied on by individuals before the national courts against the State.

Costs

80Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (First Chamber) hereby rules:

Article 2(1)(c) and Article 9(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that, as regards trade factoring, in the context of which the factor relieves the client of debt recovery operations and of the risk of the debts not being paid,

the factoring commission paid for a debt collection service the value of which increases the longer the payment term and the greater the level of risk assumed by the factor and

the arrangement fees paid by the client, which correspond to the flat-rate amount paid in order to set up the factoring process and which cover, inter alia, the cost of procedures relating to compliance with the obligations arising from the applicable legislation on money laundering,

constitute the value actually given in return for the supply of services falling within the scope of that directive.

Signatures

Article 135(1)(b) and (d) of Directive 2006/112

must be interpreted as meaning that:

the factoring commission paid for a debt collection service the value of which increases the longer the payment term and the greater the level of risk assumed by the factor and

the arrangement fees paid by the client, which correspond to the flat-rate amount paid in order to set up the factoring process and which cover, inter alia, the cost of procedures relating to compliance with the obligations arising from the applicable legislation on money laundering

charged by the factor in the context of trade factoring such as that referred to in the answer in point 1 of the operative part or invoice factoring, which is characterised by the fact that the factor undertakes the recovery and collection of the debts concerned which, without being transferred to that factor, are used as security for the financing provided by the factor to the client, constitute consideration for a single and indivisible service of debt collection, subject to value added tax.

Article 135(1)(d) of Directive 2006/112

must be interpreted as meaning that the exception relating to ‘debt collection’, provided for in that provision, is unconditional and sufficiently precise to have direct effect and, therefore, may be relied on by individuals before the national courts against the State.

[Signatures]

( *1 ) Language of the case: Finnish.

( i ) The name of the present case is fictitious. It does not correspond to the real name of any of the parties to the proceedings.

Provisional text

OPINION OF ADVOCATE GENERAL

RANTOS

delivered on 3 April 2025 (1)

Case C‑232/24 [Kosmiro] (i)

A Oy

in the presence of

Veronsaajien oikeudenvalvontayksikkö

(Request for a preliminary ruling from the Korkein hallinto-oikeus (Supreme Administrative Court, Finland))

( Reference for a preliminary ruling – Value added tax (VAT) – Directive 2006/112/CE – Taxable transactions – Exemption relating to the granting of credit – Article 135(1)(b) – Exemption relating to financial transactions – Debt collection – Article 135(1)(d) – Trade factoring – Invoice factoring )

I. Introduction

1This request for a preliminary ruling concerns the interpretation of Article 2(1)(c), Article 9(1) and Article 135(1)(b) and (d) of Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). (2)

2The reference has been made in proceedings between A Oy (‘A’), a company incorporated under Finnish law, and the Keskusverolautakunta (Central Tax Board, Finland) concerning the treatment for value added tax (VAT) purposes of various commissions and fees charged by that company in connection with its factoring activities.

3It should be recalled that the term ‘factoring’ is used to describe financial management services which enable an undertaking (‘the client’) to assign debts on unpaid invoices (‘invoiced debts’) owed to it by its debtors (‘the invoiced debtors’) to a factoring company (‘the ‘factor’) in order to obtain early payment. In return, the factor assumes, for remuneration, responsibility for collecting those debts and, depending on the agreement, offers a guarantee against non-payment. (3) That service thus enables the client to improve its cash flow without having to wait for the expiry of the payment periods granted to invoiced debtors. (4)

4While the Court’s case-law provides useful guidance as to the treatment of factoring services for the purposes of VAT, (5) the present reference for a preliminary ruling will allow clarification as to whether certain elements of the factor’s remuneration for the supply of factoring services are to be regarded as the consideration for the supply of services falling within the scope of the VAT Directive and, if so, whether those services constitute a transaction relating to ‘debt collection’, subject to VAT under Article 135(1)(d) of that directive, or the ‘granting of credit’, exempt from VAT under Article 135(1)(b) of that directive.

II. Legal framework

A. European Union law

5Article 2(1)(c) of the VAT Directive states:

‘1. The following transactions shall be subject to VAT:

…

(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such’.

6The first and second paragraphs of Article 9(1) of that directive provide:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

7Article 135(1)(b) and (d) of that directive provides:

‘Member States shall exempt the following transactions:

…

(b) the granting and the negotiation of credit and the management of credit by the person granting it;

…

(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection’.

B. Finnish law

8Point (1) of the first subparagraph of Paragraph 1 of the Arvonlisäverolaki 1501/1993 (Law No 1501/1993 on value added tax), of 30 December 1993 (‘the AVL’), which transposes the VAT Directive into Finnish law, states that value added tax is payable to the State on sales of goods and services, in the conduct of business, which take place in Finland.

9The second subparagraph of Paragraph 18 of that law defines ‘sales of services’ as the performance, or other supply, of services for a consideration.

10Article 41 of that law provides that VAT is not payable on the sale of financial services.

11Points (2) and (3) of the first subparagraph of Paragraph 42 of that law provide that, first, the granting of credit and other financial arrangements and, secondly, credit management by the person granting the credit, constitute financial services.

III. The dispute in the main proceedings, the questions referred for a preliminary ruling and the proceedings before the Court of Justice

12A is a Finnish company which provides financial services, including factoring, which accounts for most of its business.

13A’s clients generally carry on their activities in sectors where cash flow is low. They use factoring services in order, first, to have the funds they expect from the invoiced debts at their disposal immediately before the expiry of the time limit for payment of those invoices and, secondly, to be relieved of the task of collecting and chasing invoice payments. The invoiced debts which are the subject of factoring are those arising from invoices issued by A to invoiced debtors and which are uncontested.

14The factoring agreements concluded between A and its clients concern factoring taking either the form of financing guaranteed by invoices (‘invoice factoring’) or the sale of debts (‘trade factoring’).

15On the one hand, in the case of invoice factoring, A, acting as a factor, grants financing to its client by granting it a credit based on the unpaid invoiced debts of the client’s debtors, up to a total amount determined by A on the basis of the level of risk of that client’s business activity, with A taking responsibility for sending reminders for the debts assigned to it and ensuring their extrajudicial collection. In such a case, the invoiced debts, which are chosen by A, are not legally transferred, but are used as collateral for the financing granted, so that, on the one hand, a declaration of assignment of the debts assigned to A as collateral is sent to the client’s invoiced debtors, informing them that they are required to pay A when the claim falls due, and, on the other hand, the client remains the creditor of the invoiced debtors and assumes the risk of default by such debtors. (6)

16On the other hand, in the case of trade factoring, A purchases invoiced debts from the client of its choice up to the maximum amount that A undertakes to purchase from that client. That amount is based on A’s risk assessment of the client’s business activity. (7) The Korkein hallinto-oikeus (Supreme Administrative Court, Finland), the referring court, points out that, unlike invoice factoring, in which the default risk continues to be borne by the customer, trade factoring involves the assignment of the debts and therefore the transfer of the risk of default by the invoiced debtors to the company acquiring them.

17The factoring contracts between A and its clients provide that A is to charge various fees and commissions. In its decision, the referring court lists nine such fees, but concentrates on the most important fees in terms of amount, namely the factoring commission and the arrangement fee: (8)

– The factoring commission is a charge levied in advance by A, expressed as a percentage of each invoiced debt covered by the agreement. The amount of that factoring commission is calculated in the same way for both invoice factoring and trade factoring, on the basis of the payment terms for the invoiced debts. The longer the invoice payment term and the lower credit rating for the debts concerned, the higher the amount; (9)

– The arrangement fee is a flat-rate charge which the client pays to A for activities associated with setting up and activating the factoring process, including in particular compliance with obligations under money-laundering legislation.

18A applied to the Central Tax Board for a tax ruling on the VAT treatment of the commissions and fees which it charges its clients in connection with its factoring activities.

19The Central Tax Board sent A a preliminary ruling covering the period between 25 October 2022 and 31 December 2023, in which, first, it considered that the commissions and fees which A charged its clients in connection with its invoiced and trade factoring activities were subject to VAT, in so far as they constituted the consideration for the management and collection of invoiced debts, (10) and by which, secondly, it held, inter alia, that the factoring commission and the arrangement fee (at least in part) constituted the consideration for a VAT-exempt financial service. More specifically, in so far as A offered its clients financing within a customised limit, the factoring commission constituted, like other charges and fees, (11) the consideration for a financial service relating to the granting of credit, which was exempt from VAT under Article 41 of the AVL. On the other hand, according to the Central Tax Board, the arrangement fee should be divided into a part subject to VAT and another part exempt from VAT, on the ground that it constituted remuneration for setting up and activating the debts-factoring process and was thus the consideration for a service which was partly subject to and partly exempt from VAT.

20A lodged an appeal with the referring court, for partial alteration of the preliminary ruling issued to it, claiming that all commissions and fees charged should be subject to VAT, thus benefitting from a right of deduction. More specifically, it considers, first, in the case of invoice factoring, that the factoring commission and all the other costs and fees charged under the agreement, (12) including the arrangement fee, are, as a whole, subject to VAT, as the consideration for a service relating to management and the collection of invoiced debts or other services subject to VAT. It claims, secondly, in the case of trade factoring, that that type of factoring does not, according to A, involve, and therefore could not be equated with, the granting of credit since A purchases the invoiced debts from its clients and therefore there is no debt relationship between it and its clients. The service at issue did not consist in making the capital available to the customer and therefore the fees charged for that service should be considered in all respects as the consideration for a service subject to VAT.

21The Veronsaajien oikeudenvalvontayksikkö (Tax Recipients’ Legal Services Unit, Finland) intervened before that court in support of the positions Central Tax Board. In its view, first, invoice factoring is a mechanism which enables the client to obtain credit from A in exchange for its own invoiced debts, so that the factoring commission and other fees levied by A in that connection thus constitute the consideration for the granting of credit and, secondly, as regards trade factoring, the levy charged for the purchase of invoiced debts constitutes, according to it, the consideration for a taxable service, unlike the factoring commission and the other fees, which constitute the consideration for providing the client with capital, that is to say, a service separate from the purchase of debts and exempt from VAT.

22The referring court has doubts as to how the various fees charged for invoice factoring and trade factoring are to be treated. (13) In that regard, it states that its reference for a preliminary ruling may be regarded as being limited to the factoring commission and the arrangement fee, in so far as the analysis of their treatment for the purposes of VAT appears to be sufficient to enable it to determine how the other fees and charges should be treated.

23In those circumstances, the Korkein hallinto-oikeus (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Where a factoring company acquires from a client invoiced debts not yet due so that the default risk relating to those debts is transferred from that client to that company (factoring taking the form of a sale of debts, ‘trade factoring’):

(a) is the factoring commission which is charged by that company consisting of a percentage of each invoiced debts covered by the agreement, to be regarded as an adjustment to the purchase price of the acquisition of the debts or as another item outside the scope of the VAT Directive, or

(b) are Articles 2(1)(c) and [Article ]9 of the VAT Directive to be interpreted as meaning that that same company provides its client, in return for the factoring commission referred to in question 1(a) above, with a supply of services for reward falling within the scope of the VAT Directive?

(2) Is the fixed arrangement fee which is charged to the client for setting up and activating the factoring arrangement in the context of trade factoring to be regarded as a consideration for the supply to the client of a service falling within the scope of the VAT Directive?

(3) Where the fees referred to in the first and second questions which are charged in the context of trade factoring are to be regarded as a consideration for a supply of services falling within the scope of the VAT Directive:

(a) is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission or the arrangement fee charged to the client are to be regarded as consideration for the supply of a tax-exempt service, or

(b) is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or the consideration for another taxable service?

(4) Where a factoring company finances its client by granting it credit so that that client’s invoiced debts are used as collateral for the finance provided by that company (factoring taking the form of financing guaranteed by invoices, ‘invoice factoring’):

(a) is Article 135(1)(b) of the VAT Directive, relating to the granting of credit, or Article 135(1)(d) of that directive, relating to transactions concerning payments or debts, to be interpreted as meaning that the factoring commission charged to the client, consisting of a percentage of each invoiced debt covered by the agreement, and the fixed arrangement fee for setting up and activating the factoring agreement must be regarded, at least in part, as a consideration for the supply of a tax-exempt service, or

(b) is Article 135(1)(d) of the VAT Directive to be interpreted as meaning that it is the consideration for debt collection, which is to be regarded as a taxable supply of services, or the consideration for another taxable service?

(5) If the factoring commission or arrangement fee charged in the context of trade factoring or invoice factoring is to be wholly regarded, on the basis of the answer to the third and fourth questions, as the consideration for a taxable service, is the taxation of that service in application of the VAT Directive so clear and unconditional such that, where the taxable person so requests, that taxation be recognised as having direct effect even though the exemption from VAT provided for by the national VAT law covers, besides the granting of credit, other financing arrangements?’

24Written observations were submitted to the Court by A, the Finnish Government and the European Commission.

IV. Analysis

A. First and second questions referred for a preliminary ruling

25By its first and second questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 2(1)(c) and Article 9(1) of the VAT Directive must be interpreted as meaning that, in the case of trade factoring, such as that at issue in the main proceedings, the factoring commission and the arrangement fee, which are levied on such activity, must be regarded as elements of remuneration constituting the consideration for the supply of services falling within the scope of that directive.

26The doubts expressed by the referring court in that regard do not appear to be based on the claims made by the parties to the main proceedings, who consider that such activity clearly falls within the scope of the VAT Directive, but rather on its interpretation of the judgments in MKG and in GFKL. (14)

27In that regard, I would like to recall, as a preliminary point, that the VAT Directive establishes a common system of VAT based on, inter alia, a uniform definition of taxable transactions. (15) Thus, under Article 2(1)(c) of that directive the supply of services for consideration by a taxable person acting as such is to be subject to VAT. Article 9(1) of that directive states, to that effect, in the first paragraph thereof, that ‘taxable person’ is to mean any person who, independently, carries out any economic activity, whatever the purpose or results of that activity. Under the second paragraph thereof, any activity of persons supplying services, including transactions involving ‘the exploitation of … intangible property for the purposes of obtaining income therefrom on a continuing basis’, is in particular to be regarded as ‘an economic activity’. As regards the term ‘exploitation’ for the purposes of that provision, that term refers, in accordance with the requirements of the principle of neutrality of the common system of VAT, to all transactions, whatever may be their legal form, by which it is sought to obtain income from the goods in question on a continuing basis. (16) Thus, that directive assigns a very wide scope to VAT, since an activity is categorised as ‘economic’ where it is permanent and is carried out in return for remuneration which is received by the person carrying out the activity. (17)

28It is in the light of those principles that I shall first examine whether trade factoring constitutes a supply of services for consideration within the meaning of the above provisions, which thus falls within the scope of the VAT Directive.

29In that regard, I would like to point out that the Court has previously had occasion to hold that factoring activities must be regarded as falling within the scope of VAT. In its judgment in MKG, which concerned a so-called ‘true’ factoring agreement – that is to say one characterised by the purchase by the factor of his or her client’s debts without having a right of recourse against the client in the event of default by the debtors – the Court ruled, pursuant to the Sixth Directive, (18) that such an activity constituted a supply of services for consideration which falls within the scope of VAT. In arriving at that conclusion, the Court noted in particular that ‘the relationship between the factor and his or her client is governed by a contract under which there is reciprocal performance’, the latter consisting in practical terms, for the factor, ‘in relieving [the client] of the debt-recovery operations and of the risk of the debts not being paid’ and, for the client, paying, in return for the service thus received, remuneration corresponding to ‘the difference between the face value of the debts … assigned to the factor and the amount which the factor pays him or her for the debts’. (19)

30Although based on an interpretation of the Sixth Directive, I consider that the solution adopted in the judgment in MKG remains applicable and fully transposable to trade factoring, such as that at issue in the present case, since it has, essentially, the same characteristics as the ‘true factoring’ at issue in the judgment in MKG. Under a trade factoring agreement, the factor and his or her client undertake reciprocally, in the case of the factor, to purchase from his or her client the invoiced debts not due in order to relieve him or her of debt-recovery operations, while assuming the risk of default, and, in the case of the client, to pay the various fees set out in the factoring agreement. The supplies agreed in that agreement are reciprocal since the provision of services by A is conditional on payment by the clients of the agreed fees, and the latter payment is conditional on the provision to those clients by A of the agreed services.

31Consequently, I tend to take the view that the supplies provided by a factor under a trade factoring agreement, such as that at issue in the main proceedings, constitute supplies of services ‘for consideration’ within the meaning of Article 2(1)(c) of the VAT Directive.

32That conclusion cannot be invalidated by the judgment in GFKL, to which the referring court refers. It should be recalled that that case concerned an isolated sale of debts considered to be ‘doubtful’, namely 70 loan agreements that had been terminated and declared mature, which entailed the purchaser assuming responsibility for debt recovery and the risk of default, and whose purchase price reflected not the remuneration for a service provided but the actual economic value of the assigned debts, which had become lower than their face value. It was precisely in that context that the Court held that an operator who, at his or her own risk, purchases defaulted debts at a price below their face value does not effect a supply of services for consideration within the meaning of the Sixth Directive and does not carry out an economic activity falling within the scope of that directive when the difference between the face value of those debts and their purchase price reflects the actual economic value of the debts at the time of their assignment. (20)

33However, it seems clear to me that no comparison can be drawn between, on the one hand, factoring by sales of debts which are not due, as in the case in the main proceedings, and, on the other hand, the purchase of ‘doubtful’ debts which are already due, at issue in the case which gave rise to the judgment in GFKL. It must be stated, first of all, that those activities pursue different objectives from the client’s point of view. In the first case, the client seeks to dispose of capital immediately, even if its debts will only become due at a later date, whereas in the second case, the client seeks to waive debts that have already fallen due and which present a certain risk. Second, unlike factoring activities, the parties involved in the purchase of debts already due have not agreed a commission as remuneration in addition to the purchase price for a service provided by the purchaser of the debts. Unlike true factoring, the assignee of the debts received no consideration from the assignor. (21) Furthermore, the actual economic value of the ‘doubtful’ debts at the time of their purchase does not take into account, as in the present case, the services which relieved the seller of the burden and risks associated with the collection of the invoiced debts. Lastly, trade factoring does not appear to be comparable to the purchase of assets such as ‘shares in a company’, the owner of which would receive the yield, (22) since the factor does not act as a passive owner but manifestly provides his or her client with a service consisting in the assumption, for remuneration, of the risk of default by the debtor.

34Secondly, after having established that trade factoring falls within the scope of VAT, I will analyse whether, despite the circumstances set out by the referring court, (23) there is a direct link between the factoring activity and the amount received in return in the form of the factoring commission and the arrangement fee, thereby enabling me to confirm that they constitute the consideration for supplies falling within the scope of VAT.

35Subject to verification by the referring court, I consider that that appears to be the case here.

36First, with regard to the factoring commission, I consider that the proposal of the referring court that that commission could be considered as an adjustment item with which the purchase price of the debt is adapted to its discounted present value is unfounded. That commission is a fee consisting of a percentage of each invoiced debt purchased, that amount being higher the longer the invoice payment period and the lower the rating of the debts concerned. Consequently, that percentage has no connection with the setting of the purchase price of the debts, which may range from the face value to a reduced share of the debt. Therefore, that commission does not appear to be set following an assessment of the economic value of the invoiced debt at the time of the assignment, but appears to be directly linked to the consideration for the services provided by A. Furthermore, it is clear from the written observations submitted by A that, since the assigned debts are not due, there is no reason to believe that the face value of the debts does not correspond to their actual economic value or that it would be appropriate to adjust the face value of the debt so that the price paid for it corresponds to its real economic value since there is no reason to suppose that the invoiced debtors will not pay in full their debts which are not yet due. Moreover, without prejudice to the task of the referring court to make definitive assessments, it would appear that that commission forms part of a long-term service relationship and that A levies ongoing annual and/or monthly charges on its clients, so that the assertion that A does not receive any consideration after the assignment of the debts is not correct. (24)

37Second, with regard to the arrangement fee, it is clear from the evidence available to the Court that that fee constitutes a flat-rate remuneration paid by the client to the factor in return for services relating to the setting up of the factoring process, including compliance with obligations under money-laundering legislation. That implies that, for as long as the factoring agreement remains in force, that fee can be regarded as the consideration for providing the services, as services essential to the supply of invoice factoring. It follows that the payment of that fee is also effected on the basis of a contractual relationship unrelated to the value of the debts or to any adjustment thereof. On the contrary, it seems to me that the provision of the services at issue and the payment of the arrangement fee are interdependent, so that one element is provided only on condition that the other element is also provided, and vice versa.

38Having regard to the foregoing, I propose that the answer to the first and second questions should be that Article 2(1)(c) and Article 9 of the VAT Directive must be interpreted as meaning that, in the case of invoice factoring, such as that at issue in the main proceedings, both the factoring commission and the arrangement fee, which are charged by the factor for those supplies, must be regarded as constituting the consideration for supplies falling within the scope of that directive.

B. Third and fourth questions referred for a preliminary ruling

39By its third and fourth questions, which it is also appropriate to examine together, the referring court seeks, in essence, to ascertain whether Article 135(1)(d) of the VAT Directive must be interpreted as meaning that the factoring commission or the arrangement fee charged by a factor in the case of invoiced or trade factoring services, such as those at issue in the main proceedings, constitute the consideration for a single and indivisible supply relating to ‘debt collection’, which is subject to VAT under that provision and, if not, whether those two fees must, at least in part, be regarded as constituting the consideration for a supply of services exempt from VAT as a supply relating to the ‘granting … of credit’ or to ‘transactions … concerning … payments, [and] debts’ under Article 135(1)(b) and (d) respectively of that directive.

40It is apparent from the order for reference that the doubts raised by the referring court relate principally to the possible classification of those two fees as constituting, as a whole, the consideration for a single and indivisible supply relating to debt collection. According to that court, it is possible to take the view that the factoring service includes a financing service taking the form, at least in part, of the granting of credit which is not linked or ancillary to the debt collection service, and therefore those two services cannot be treated, for VAT purposes, as a single and indivisible supply. Furthermore, again according to that court, regarding the factoring activity as being an activity wholly subject to VAT could lead to different treatment, for VAT purposes, of the various activities relating to financing and the granting of credit.

41In this context, I will consider, first, whether trade and invoiced factoring services can be classified as ‘[debt collection] transactions’ within the meaning of Article 135(1)(d) of the VAT Directive, then, whether the two fees referred to above constitute the consideration for a single and indivisible factoring supply, and, finally, whether those fees may constitute, at least in part, the consideration for services relating to the ‘granting … of credit’ or ‘[payment of] debts’ under Article 135(1)(b) and (d) respectively of that directive.

42In the first place, with regard to the classification of factoring services as ‘[debt collection] transactions’ within the meaning of Article 135(1)(d) of the VAT Directive, I should note that that provision provides that Member States are to exempt ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection’.

43According to the Court’s settled case-law, the VAT exemptions referred to in Article 135(1) of that directive constitute autonomous concepts of EU law which are intended to avoid divergences in the application of the VAT system from one Member State to another. It is also settled case-law that the terms used to specify those exemptions are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person. Nevertheless, such an interpretation must be consistent with the objectives pursued by those exemptions and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT and therefore it cannot deprive them of their intended effect. (25)

44In this respect, I note that, in the absence of a definition of the term ‘debt collection’ in the VAT Directive, it is necessary to view Article 135(1)(d) of that Directive in its context and to interpret it in the light of the spirit thereof and, more generally, the scheme of that directive. (26) Thus, that term, as an exception to the provision derogating from the application of VAT, must be interpreted broadly, with the result that the transactions which it covers are subject to tax in accordance with the fundamental rule forming the basis of the VAT Directive. (27) Adopting such a broad definition, the Court held, in its judgment in MKG, that the term ‘debt collection’ within the meaning of that provision was to be interpreted as referring to financial transactions designed to obtain payment of a pecuniary debt. (28) As far as is relevant here, the Court has held that that term must interpreted as encompassing all forms of factoring, given that, by its objective nature, the essential purpose of factoring is the recovery and collection of debts owed by a third party. Consequently, according to the Court, factoring must be regarded as constituting merely a variant of the more general concept of ‘debt collection’, whatever the manner in which it is carried out. (29) Thus, the exception to the VAT exemption for ‘debt collection’ was to be understood as covering both ‘true factoring’ and ‘quasi-factoring’, in so far as, according to the Court, there is no justification for treating those two categories of factoring differently from the point of view of VAT – in both cases the factor makes supplies to the client for consideration and accordingly pursues an economic activity. (30)

45That reasoning appears to be entirely applicable in the present case.

46First, as is apparent from the analysis in point 30 of this Opinion, trade factoring has the same characteristics as the true factoring at issue in the judgment in MKG. In that judgment, the Court ruled that true factoring constitutes a debt collection activity within the meaning of Article 135(1)(d) of the VAT Directive. (31) Accordingly, that finding should also apply to trade factoring.

47Second, as regards invoice factoring, it must be stated that the only difference between that type of factoring and the quasi-factoring at issue in the judgment in MKG lies in the fact that, in the latter, the debts were legally assigned to the factor, (32) whereas in invoice factoring the debts are not assigned but used as collateral for the finance granted. (33) However, those two types of factoring lead to the same result, namely the collection of debts, without the factor bearing the risk of debtor default. In so far as, in its judgment in MKG, the Court held that quasi-factoring also fell within the exception concerning the collection of debts provided for in Article 135(1)(d) of the VAT directive, (34) invoice factoring should also be regarded as falling within that exception.

48It follows that, on the basis of an application by analogy of the judgment in MKG, it can be concluded that the two factoring services at issue constitute a supply relating to debt collection within the meaning of Article 135(1)(d) of the VAT Directive.

49Second, as regards the indivisible or distinct nature of the various supplies offered as part of a factoring service, I should recall that, in the present case, the Central Tax Board considered that both invoice factoring and trade factoring are made up of distinctive and independent supplies, that is to say, on the one hand, the ‘granting of credit’, which is exempt from VAT, and, on the other hand, ‘debt collection’, which is subject to VAT. It is therefore appropriate to determine, for tax purposes, whether the two fees at issue relate to the taxable or exempt element of the factoring services.

50In that regard, I note that it follows from the Court’s case-law that, in cases where a transaction comprises a bundle of elements and acts, there is no absolute rule for determining the extent of a service for VAT purposes and, in order to determine the extent of a service, regard must therefore be had to all the circumstances in which the transaction concerned takes place in order to determine, in particular, whether it gives rise, for VAT purposes, to two or more separate supplies or to a single supply, it being clear that, as a general rule, each supply must be regarded as a distinct and independent supply, as follows from the second subparagraph of Article 1(2) of the VAT Directive. (35) However, by way of exception to that general rule, first, the transaction which comprises a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system. This is why there is a single supply where several elements or acts supplied by the taxable person to the customer are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. (36) Second, in certain circumstances, several formally distinct services, which could be provided in isolation and thus give rise to separate taxation or exemption, must be considered as a single transaction when they are not independent. This is the case in particular where one or more elements are to be regarded as constituting the principal supply, while, by contrast, other elements are to be regarded as one or more ancillary supplies which share the tax treatment of the principal supply. In particular, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied. (37) Third, in determining whether a transaction involving several supplies constitutes a single transaction for VAT purposes, the Court takes into account both the economic objective of that transaction and the interests of the recipients of the supplies. (38)

51Whilst it is for the referring court to determine whether the factoring services at issue constitute a single supply and to make all findings of fact in that regard, it is for the Court to provide it with the guidance as to the interpretation of EU law which may be of assistance in adjudicating on the case pending before it. (39)

52In that regard, it should be noted at the outset that, generally speaking, factoring contracts do not easily allow for a single characterisation or description, particularly as it is possible to discern at least three main functions pursued by such contracts, namely: (i) a financing function, which allows the customer an advance on the basis of the assigned debt; (ii) a function of managing the invoice account and the clients’ stock of debts, and (iii) a function of guaranteeing against the default of debtors under a true factoring contract. (40) However, in the present case, the referring court’s doubts relate principally to the first function, namely that of financing, which is present in all factoring service contracts, such as those at issue in the main proceedings, and which display similarities with services relating to the ‘granting of credit’.

53In that regard, I consider it appropriate to draw a distinction between the analysis of trade factoring and that of invoice factoring.

54First, as regards trade factoring, it must be stated that this form of factoring does not, by definition, involve the granting of credit, since, although the client has the funds paid from the invoiced debts, those funds are not the subject of a loan, but of a definitive sale. In that sense, the service only encompasses debt collection and management of invoiced debts, with the associated transactions. Thus, by virtue of the definitive nature of the sale of debts, the client does not repay the funds received and A receives payment from the invoiced debtor in place of its client. As a result, there is no credit relationship between A and its client since the latter does not repay the capital provided to it. In other words, although A has to finance the debts during the period between the time it buys them from its client and the time the invoiced debtor pays to it the invoice (the debt), that does not mean that it grants a credit to its client.

55Second, as regards invoice factoring, which does not involve the definitive sale of debts, I believe that it would be preferable, for VAT purposes, not to split such a service into its various supplies.

56First of all, it is not disputed that factoring, from the point of view of both the client and the factor, constitutes in principle a single service economically. The various services that may be offered by a factor appear to be linked and form a single indivisible economic service, the main purpose of which is to ensure that the client does not have to concern himself or herself with collecting his or her debts. In view of that economic purpose, splitting such a service would, in my view, be artificial.

57Next, it should be noted that while, from a theoretical point of view, financing supplies and other supplies aimed at facilitating debt recovery could be provided in isolation, in the present case those operations do not appear to be provided independently. The financing supply could not be provided without all the other services associated with setting up and activating the factoring process (covered by the arrangement fee), and, conversely, those services would have no reason to exist in the absence of a financing supply. In fact, the principal supply of factoring services consists in ‘relieving [the client] of the debt-recovery operations’, (41) and, in that respect, the financing supply must be considered as one of the ancillary supplies which shares the same tax treatment as the principal supply. For the client, financing is not an end in itself, in particular because other external financing options exist – such as bank credit – at potentially lower costs, but rather a means of benefiting from the early collection of debts and improving cash flow.

58I also note that the economic reality, as reflected, in principle, in the contractual agreements at issue, constitutes a fundamental criterion for the application of the common system of VAT. Consequently, the question whether different supplies form a single complex transaction may be contingent on the conditions in which the payment for those services falls due. It is therefore for the referring court to determine whether the nine types of remuneration (42) form the consideration for supplies that contractually constitute a single complex transaction. Thus, it would be useful to consider whether, in the present case, those supplies are provided in return for payment of a separate fixed fee, independently of any provision of the factoring service, which might suggest that those supplies are distinct and independent of the provision of the factoring service. (43)

59Lastly, contrary to what the Finnish Government maintains in its written observations, it does not appear to me problematic for the two forms of factoring, such as those at issue, to be considered in their entirety as services subject to VAT. Whilst it is true that this finding would imply the existence of a market in which financing exempt from VAT would be available in the form of traditional credits and financing subject to VAT would be available in the form of factoring, and that that would place the providers of the different forms of financing in different situations, so that only factors would have a right of deduction allowing their clients to deduct the tax included in the factoring service, so that that tax would not constitute a cost for those clients, it seems to me that that was precisely the deliberate choice made by the EU legislature. Article 135(1)(d) of the VAT Directive draws a distinction between certain services exempt from VAT and other services that continue to be subject to it. In theory, the granting of credit is considered to be a purely financial transaction which does not involve the supply of a service as such, and which consists of providing funds, so that the interest received in return for the credit is treated as financial income rather than remuneration for a taxable supply. (44) Furthermore, from the point of view of VAT neutrality, taxation would have an inflationary effect and be detrimental to the financing of the economy, if VAT could not generally be recovered by the borrower. (45) On the other hand, ‘debt recovery’ is not exempt since, from an economic point of view, it is a supply of services rendered to a creditor in return for commissions and fees, and therefore generates a specific economic added value. (46)

60Thirdly and lastly, and for the sake of completeness, I wish to reply to the question raised by the referring court as to whether the two fees at issue may constitute the consideration for services relating to the ‘granting of credit’ within the meaning of Article 135(1)(b) of the VAT Directive, in the light of the judgments in Franck and in Fund O, to which it refers. I consider that those judgments cannot be interpreted in such a way as to justify splitting factoring services for VAT purposes.

61On the one hand, in its judgment in Franck, the Court stated that the expression ‘granting and negotiating credit’ in that provision must be interpreted broadly so that its scope cannot be limited to loans and credits granted by banking and financial institutions only, (47) that the granting of such credit consists, inter alia, in the provision of capital against remuneration, and that such remuneration may take forms of consideration other than the payment of interest. (48) However, a broad interpretation of that expression cannot suggest that, in the present case, the remuneration which A charges its clients constitutes the consideration for providing credit. The factual context in which that judgment was delivered, which differs in several respects from the present case, cannot be disregarded. More specifically, in the judgment in Franck, a borrower had used a bill of exchange as a credit instrument to obtain a loan from an intermediary company, which had sold that bill of exchange to a factoring company. In that way, the intermediary company, which was not a financial institution, had provided funds to the borrower, who otherwise would not have been able to borrow funds from financial institutions on account of its low credit rating. The fact that one of the companies involved in that transaction was a factoring company was clearly irrelevant, and the relationship between the borrower and the intermediary company could also not be qualified as ‘factoring’, as the bills of exchange had not been issued by the borrower on the basis of factoring services provided by the intermediary company. (49) In the main proceedings, there is nothing to indicate the existence of a tripartite contractual relationship between A, its client and the invoiced debtors, under which A provided funds to the client by granting it credit. Moreover, the invoiced debtors are not to reimburse A for the client’s credit debt or interest, but for their own debts arising from the invoiced debts.

62On the other hand, with regard to the judgment in Fund O, it is true that the Court held that, in the context of a sub-participation agreement, by which a sub-participant (the investor) provides financing to an originator (a non-standardised securitisation fund) in return for future income generated by specific receivables, while those receivables remain legally the property of the originator, the fact that the sub-participant is exposed to potential losses and thus bears the credit risk is inherent in any grant of credit, regardless of whether that risk stems from non-payment by the debtors of the receivables from which the proceeds are transferred to it or from the insolvency of its direct co-contractor. (50) However, aside from the question of the ownership or otherwise of the receivables and the risk management, that type of service differs from factoring in that it is a financing instrument, used in securitisations or in structured financing which cannot be carried out by means of conventional loans, and which is, consequently, akin to the granting of credit, whereas factoring constitutes, principally, a service relating to the management of debt collection. Lastly, the mere fact that a transaction entails a financial risk is not sufficient to exempt it from VAT. For example, in the case of leasing the lessor bears certain financial risks (for example, in the event of default by the lessee or depreciation of the asset), but the supply provided is a leasing transaction and not a VAT-exempt financing transaction.

63Having regard to the foregoing, I propose that answer to the third and fourth questions should be that Article 135(1)(d) of the VAT Directive must be interpreted as meaning that the factoring fee or the arrangement fee charged by a factor in connection with invoiced or trade factoring services, such as that at issue in the main proceedings, constitutes the consideration for a single and indivisible supply relating to ‘debt collection’ within the meaning of that provision, which is subject to VAT in accordance with that provision.

C. Fifth question referred for a preliminary ruling

64By its fifth question referred for a preliminary ruling, the referring court asks, in essence, whether, if it were to consider that the exception relating to the ‘debt collection’ laid down in Article 135(1)(d) of the VAT Directive is to be applied to factoring services, that provision must be regarded as sufficiently clear and unconditional for it to be recognised as having direct effect, so that it may be relied on before the national courts to disapply rules of national law which are incompatible with that provision. (51)

65The referring court states that the national legislation concerned, namely point (2) of the first subparagraph of Paragraph 42 of the AVL, states that not only the granting of credit but also ‘any other provision of finance’ is to be regarded as an exempt financial service, whereas the latter is not mentioned in the VAT Directive. However, if the exception to the VAT exemption relating to ‘debt recovery’ were to apply to the two fees at issue in the main proceedings as the consideration for factoring, that court considers that it might not be possible to interpret the national law in full conformity with that directive, because the concept of ‘any other provision of finance’ could also encompass factoring. It therefore wishes to ascertain whether the provisions of Article 135(1)(d) of the VAT Directive have direct effect, so that they can be relied upon directly by a taxable person in order to disapply national law that is contrary to them.

66In that regard, and without giving a view on the interpretation of national law which is a matter for the referring court alone, I would point out that, according to settled case-law of the Court, whenever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise, they may be relied on before the national courts by individuals against the State, including taxable persons for the purposes of VAT, (52) where, inter alia, the State has transposed the directive incorrectly. (53) According to that same case-law, a provision of EU law is unconditional where it sets forth an obligation which is not qualified by any condition, or subject, in its implementation or effects, to the taking of any measure either by the institutions of the European Union or by the Member States, and is sufficiently precise where it sets out an obligation in unequivocal terms. (54)

67In that context, first, as regards the unconditional nature of Article 135(1)(d) of the VAT Directive, I should point out that it is apparent from the actual wording of that provision that it confers no discretion on the Member States as regards the exemption or the taxation of the transactions concerned since, unlike other transactions which may be exempted under Article 135(1) (55) of that directive, it does not allow those Member States to fix the conditions and the limitations to which entitlement to that exemption may be made subject. It is clear from the wording of that provision, first, that ‘debt collection’ in no way falls within the scope of the exemption from VAT laid down in that provision and, second, that that exception to the exemption is not qualified by any additional condition, or subject, in its implementation or effects, to the taking of any measure either by the institutions of the European Union or by the Member States. This is all the more true as the Court has confirmed the direct applicability of tax exemptions, even where they leave a margin of discretion to the Member States as regards laying down the conditions for their application. (56)

68Second, as regards the sufficiently precise nature of Article 135(1)(d) of the VAT Directive, although the term ‘debt recovery’ has not been defined in the directive, that term is neither vague nor ambiguous and, as the Court has shown, must be interpreted broadly so that ‘factoring’, whether true or otherwise, is included in it. (57) Moreover, for the reasons set out in points 58 to 62 of this Opinion, that term relates to a transaction that is distinct from transactions relating to the granting of credit.

69Having regard to the foregoing, I propose that the answer to the fifth question should be that the exception to the exemption from VAT relating to the ‘debt collection’ laid down in Article 135(1)(d) of Directive 2006/112 is unconditional and sufficiently precise to be capable of having direct effect, so that it may be relied on before a national court to contest the application of a rule of national law which is contrary to it.

V. Conclusion

70In the light of the foregoing considerations, I propose that the Court of Justice answer the questions referred for a preliminary ruling by the Korkein hallinto-oikeus (Supreme Administrative Court, Finland) as follows:

(1) Article 2(1)(c), Article 9(1) and Article 135(1)(b) and (d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

must be interpreted as meaning that in the case of factoring taking the form of a sale of debts, by which the factor purchases from a client invoiced debts not yet due, while assuming the risk of default by that client’s debtor, (i) the commission charged by the factor to the client, which consists of a percentage of each invoiced debt covered by the agreement, that percentage being higher the longer the invoice payment period and the lower the rating of the debts concerned, and (ii) the fixed arrangement fee charged by the factor to the client for setting up and activating such a process, must be regarded as constituting the consideration for the provision of services falling within the scope of that directive.

(2) Article 135(1)(d) of Directive 2006/112

must be interpreted as meaning that the factoring fee or the arrangement fee charged by a factor in connection with a factoring activity taking the form of a sale of debts, such as that referred to in the previous paragraph, or factoring taking the form of financing guaranteed by invoices, by which the factor grants credit to a customer in such a way that the invoiced debts of that client are used as collateral for the financing granted by the factor, constitute the consideration for a single and indivisible supply relating to ‘debt collection’, which is subject to value added tax (VAT) in accordance with the exception to the VAT exemption laid down in that provision.

(3) The exception to the VAT exemption relating to the ‘debt collection’ laid down in Article 135(1)(d) of Directive 2006/112 is unconditional and sufficiently precise to be capable of having direct effect, so that it may be relied on before a national court to contest the application of a rule of national law contrary to it.

Notes

(1) Original language: French.

i The name of the present case is fictitious. It does not correspond to the real name of any of the parties to the proceedings.

(2) Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

(3) See, to that effect, the description given by Advocate General Jacobs in his Opinion in MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:132, point 1), according to which ‘true factoring … describes a transaction whereby the factor purchases debts owed to its client, and thereby assumes the risk of the debtor defaulting. It is thus differentiated from quasi factoring arrangements, in which a factor assists in the administration and collection of debts without any corresponding assumption of the risk of loss’ (emphasis added).

(4) Factoring thus differs from other methods of financing, in particular bank credit, in that it is based primarily on the quality of the invoiced debts in terms of the ability of the invoiced debtors to pay, rather than on the financial soundness of the undertaking itself.

(5) See, to that effect, judgments of 26 June 2003, MKG-Kraftfahrzeuge-Factoring (C‑305/01, ‘the judgment in MKG’, EU:C:2003:377); of 28 October 2010, Axa UK (C‑175/09, ‘the judgment in Axa UK’, EU:C:2010:646); of 27 October 2011, GFKL Financial Services (C‑93/10, ‘the judgment in GFKL’, EU:C:2011:700); of 17 December 2020, Franck (C‑801/19, ‘the judgment in Franck’, EU:C:2020:1049); and of 6 October 2022, O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O (C‑250/21, ‘the judgment in Fund O’, EU:C:2022:757).

(6) More specifically, in that type of factoring, A pays its client, at the agreed financing ratio, part of the value of the debts less the fee due to it, and that ratio may be either equal to or lower than the full face value of the debts. The credit granted to the client decreases as A receives payments from the invoiced debtors. If, within a specified period, normally 18 days following the due date, A does not receive any payment on the invoiced debts for which it has granted credit or assumes that the debts are not being settled, it may deduct the debts from the sum of the debts which it accepted as collateral. Under the financing agreement, the client must provide A with a payment corresponding to the amount of the deducted debts.

(7) Under that agreement, A’s client provides it with information identifying the debts which have not yet fallen due to it, which it intends to sell to A, and A has the right to choose the debts for which it accepts assignment. Once a debt has been accepted, A makes a payment to the client for the debt assigned to it, paying either the entire face value of the invoiced debt or part of the face value thereof, depending on the terms of the contract between it and the client.

(8) The seven other types of remuneration are as follows: (i) the ‘underwriting fee’, which is the remuneration for A maintaining a maximum finance limit available to the client; (ii) the ‘monthly or annual service charge’, which is the remuneration for the day-to-day management of the factoring agreement; (iii) the ‘invoice handling fee’, which is a fixed charge levied for each invoiced debt and which covers the costs incurred by A for assigning and managing claims; (iv) the ‘annual client gateway fee’, which is a user charge for the web pages made available to the client who has opted for a service enabling him or her to consult financed or purchased invoices and to receive, inter alia, billing reports; (v) the ‘collection fee’, which is levied primarily on invoiced debtors but in some cases on A’s own clients too; (vi) the ‘rapid processing fee’, which is remuneration for the option offered to A’s clients to have the funds available faster than A’s normal payment practice permits, and (vii) the ‘credit check fee’, which constitutes remuneration for establishing credit ratings when a client relationship is set up, covering both A’s clients and invoiced debtors.

(9) The referring court explains, by way of example, that in the case of invoice factoring, with a financing ratio of 100%, it is possible for A to receive a commission rate of 1% of the amount of each debt with a 30-day payment term, with A granting its client a credit of EUR 99 for every such debt with a face value of EUR 100 which is assigned to it. In that instance, the client would pay A a factoring commission of one euro and A receives the balance, either directly from the invoiced customer once the assigned debts has fallen due or ultimately from the client.

(10) According to the Central Tax Board, the commissions and fees subject to VAT were: (i) the monthly or annual service charge; (ii) the invoice handling fee; (iii) the annual client gateway fee, and (iv) the collection fee.

(11) More specifically, they are: (i) the underwriting fee; (ii) the rapid processing fee, and (iii) the credit check fee.

(12) See, in that respect, footnote 8 of this Opinion. According to A, only the underwriting fee can possibly be regarded as the consideration for a VAT-exempt financial service on the ground that it constitutes a percentage of the finance limit available to the client.

(13) See, in that respect, points 26, 40 and 65 of this Opinion.

(14) More specifically, it is uncertain as to the consequences to be drawn from those judgments in the present case, having regard to the fact that the factoring commission charged by A could be regarded as an adjustment item with which the purchase price of the debt is adapted to its discounted present value, in particular because of the following circumstances: (i) in contrast to the case that gave rise to the judgment in MKG, A no longer levies interest or other charges on its client after the sale of the debts, which rules out the existence of a reciprocal legal relationship subsequent to that sale; (ii) the fact that the debts at issue are not debts which have been declared mature and defaulted, but debts which are due, and, (iii) the fact that a particular remuneration was agreed between the parties in so far as it could have been indirectly incorporated into purchase price of the debts.

(15) See judgment of 7 November 2024, Lomoco Development and Others (C‑594/23, EU:C:2024:942, paragraph 33 and the case-law cited).

(16) See judgment of 25 February 2021, Gmina Wrocław (Transformation of the right of usufruct) (C‑604/19, EU:C:2021:132, paragraph 68 and the case-law cited).

(17) See, to that effect, judgment of 24 March 2022, Dyrektor Izby Skarbowej w L. (Loss of flat-rate farmer status) (C‑697/20, EU:C:2022:210, paragraph 23 and the case-law cited).

(18) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’).

(19) See judgment in MKG (paragraphs 48 and 49). In this case, the factor charged a factoring commission of 2% and a del credere fee of 1% of the face value of the debts purchased.

(20) See judgment in GFKL (paragraph 26).

(21) See judgment in GFKL (paragraphs 21 to 25). Although there was a difference between the face value of the assigned debts and their purchase price, that difference did not constitute remuneration for a service provided directly by the purchaser of the assigned debts, but rather a reflection of the true economic value of the debts at the time of their assignment, which resulted from the fact that they were doubtful, and from the increased risk of default of the debtors.

(22) See, in that respect, judgment of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268).

(23) See point 26 of this Opinion.

(24) In its written observations, A emphasises that, after the assignment of the debts, it charges its clients annual and/or monthly fees which the client pays as remuneration for the day-to-day management of the agreement, and that A’s agreements are generally long-term agreements and the legal relationship with its clients does not end with the sale of the debts.

(25) See judgment in Fund O (paragraphs 30 and 31, and the case-law cited).

(26) See judgment in Axa UK (paragraphs 29 to 31 and the case-law cited).

(27) See judgments in MKG (paragraphs 58 and 72) and Axa UK (paragraph 30).

(28) See judgment in MKG (point 78), confirmed by judgment in Axa UK (paragraphs 31 and 33).

(29) See judgment in MKG (paragraph 77). The English and Swedish versions of Article 13B(d)(3) of the Sixth Directive also referred to factoring in that regard, on an equal footing with debt recovery.

(30) See judgment in MKG (paragraphs 54, 75 and 76). According to the Court, ‘any other interpretation would draw an arbitrary distinction between those two categories of factoring and would make the business concerned bear … the cost of the VAT without giving it the possibility of deducting that cost’.

(31) See judgment in MKG (paragraph 80 and point 2 of the operative part).

(32) See judgment in MKG (paragraph 13).

(33) See point 15 of this Opinion.

(34) See judgment in MKG (paragraphs 54, 75, 76 and 80).

(35) See judgment of 4 September 2019, KPC Herning (C‑71/18, EU:C:2019:660, paragraph 39).

(36) See judgment in Frenetikexito (C‑581/19, ‘the judgment in Frenetikexito’, EU:C:2021:167, paragraphs 37 to 39 and the case-law cited). See also judgment of 18 April 2024, Companhia União de Crédito Popular (C‑89/23, EU:C:2024:333, paragraphs 34 and 35 and the case-law cited), in which the Court held that the granting of the pawnbroker loan and the sale by auction of pledged goods, where the borrower has not met his or her contractual obligations within the time limit, constitute distinct and independent supplies under Article 135(1)(b) of the VAT Directive, in that those supplies do not depend either substantively or procedurally on one another.

(37) See judgment in Frenetikexito (paragraphs 40 to 42) and of 17 October 2024, Digital Charging Solutions (C‑60/23, ‘the judgment in DCS’, EU:C:2024:896, paragraphs 46 to 48).

(38) See judgment in Franck (paragraph 26 and the case-law cited).

(39) See judgments in Frenetikexito (paragraph 36) and DCS (paragraph 49).

(40) Under Article 1(2) of the Unidroit Convention on International Factoring, signed at Ottawa on 28 May 1988 (available at the following internet address: https://www.unidroit.org/instruments/factoring/convention), ‘factoring contract’ means a contract concluded between the [client] and [factor] pursuant to which: ‘(a) the [client] may or will assign to the factor receivables arising from contracts of sale of goods made between the [client] and its [invoiced debtors] other than those for the sale of goods bought primarily for their personal, family or household use; (b) the factor is to perform at least two of the following functions: – finance for the [client], including loans and advance payments; – maintenance of accounts (ledgering) relating to the receivables; – collection of receivables; – protection against default in payment by [invoiced] debtors’. For related legal literature, see also Terra, B., and Kajus, J., A guide to the European VAT Directives, IBFD, 2024, p. 702.

(41) See point 29 of this Opinion.

(42) See footnote 8 of this Opinion.

(43) See, by analogy, judgment in DCS (paragraphs 52 to 54).

(44) See, to that effect, judgment of 17 October 2019, Paulo Nascimento Consulting (C‑692/17, EU:C:2019:867, paragraph 38).

(45) See, in that regard, judgment of 10 March 2011, Skandinaviska Enskilda Banken (C‑540/09, EU:C:2011:137, paragraph 21 and the case-law cited), where the Court considered that the purpose of VAT exemptions is to alleviate the difficulties associated with determining the tax base and the amount of deductible VAT and to avoid an increase in the cost of consumer credit. See, however, Opinion of Advocate General Jääskinen in the same case (C‑540/09, EU:C:2010:788, paragraph 22), which notes that we do not know exactly why financial transactions are exempt, since the preparatory work is silent on this point.

(46) See, to that effect, judgment in MKG (paragraphs 49 and 50).

(47) See judgment in Franck (paragraph 35 and the case-law cited). According to the Court, such an interpretation is borne out by the objective of the common system introduced by the VAT Directive, which aims, in particular, to secure equal treatment for taxable persons.

(48) See judgment in Franck (paragraphs 36 and 37 and the case-law cited), which refers to the judgment of 15 May 2019, Vega International Car Transport and Logistic (C‑235/18, EU:C:2019:412, paragraphs 47 and 48), in which the Court considered as constituting a financial transaction akin to the granting of credit the financing in advance of the purchase of goods in return for a surcharge on the amount reimbursed by the recipient of that financing. See also judgment in Companhia União de Crédito Popular (C‑89/23, EU:C:2024:333, paragraphs 40 and 44 and the case-law cited), in which the Court held that the sale by auction of pledged goods, after a period of three months has elapsed during which the borrower has not met his or her contractual obligations, on the one hand, and the granting of the pawnbroker loan, on the other, constitute distinct and independent supplies under Article 135(1)(b) of the VAT Directive.

(49) See judgment in Franck (paragraph 13).

(50) See judgment in Fund O (paragraph 38).

(51) I note that, in its request for a preliminary ruling, the referring court asks the Court as to the direct effect of the provisions of the VAT Directive under which transactions are taxable, without identifying those provisions. Taking the view that the relevant provision is Article 135(1)(d) of that directive, in that it excludes ‘debt collection’ from the VAT exemption, it is on the direct effect thereof that I shall give my opinion.

(52) See judgment of 6 November 2003, Dornier (C‑45/01, EU:C:2003:595, paragraph 82).

(53) See judgment of 26 April 2012, Balkan and Sea Properties and Provadinvest (C‑621/10 and C‑129/11, EU:C:2012:248, paragraphs 56 and 57 and the case-law cited).

(54) See judgment of 10 December 2020, Golfclub Schloss Igling (C‑488/18, EU:C:2020:1013, paragraphs 27 and 28 and the case-law cited).

(55) See, by way of example, Article 135(1)(g) and (i), of the VAT Directive and the judgment of 12 September 2024, Chaudfontaine Loisirs (C‑73/23, EU:C:2024:734, paragraphs 25 and 26 and the case-law cited).

(56) See, to that effect, judgments of 6 November 2003, Dornier (C‑45/01, EU:C:2003:595, paragraphs 80 to 82) and of 17 February 2005, Linneweber and Akritidis (C‑453/02 and C‑462/02, EU:C:2005:92, paragraphs 34 and 35, and the case-law cited).

(57) See point 44 of this Opinion.