On 23 October 2025, the European Court of Justice (ECJ) handed down its judgment in C-232/24 (Kosmiro), confirming that factoring fees and commissions are subject to VAT. The decision brings additional clarity across the EU on how factoring and receivables-financing arrangements should be treated for VAT purposes.
Two factoring models — same VAT result
The case looked at two common forms of factoring:
1. Trade factoring, where the factor purchases receivables and assumes the risk of debtor default.
2. Invoice (or financing) factoring, where the factor advances funds to the client, using the receivables as collateral rather than buying them outright.
Although legally distinct, both arrangements involved normal, performing receivables and the factor charged explicit commissions and arrangement fees. The ECJ ruled that in both cases, those fees represent remuneration for a taxable supply – not for the granting of credit or any other VAT-exempt financial transaction.
In other words, the factor was being paid for collecting, managing or assuming risk in relation to receivables. Those activities fall within debt-collection services, which are expressly excluded from VAT exemption under Article 135(1)(d) of the VAT Directive. The ECJ also confirmed that the credit-granting exemption in Article 135(1)(b) did not apply, as the fees were not consideration for the granting of credit but for ancillary services linked to receivables management.
The wider implications
While Kosmiro did not involve any discounted debt purchases, the ECJ’s reasoning could also affect other receivables-funding models. If receivables are acquired at a discount and no separate fee is charged, that discount might, in some cases, be viewed as implicit remuneration for factoring or collection services and thus VAT-liable.
However, where the discount genuinely reflects the fair market value of the receivables – for instance, when purchasing non-performing or defaulted debts – the discount would generally be seen as a pricing adjustment rather than as consideration for a service. In such cases, it should not be treated as a VAT-liable supply, because no separate remuneration is being received for managing, collecting, or assuming risk.
This distinction is particularly relevant for securitization and receivables-purchase structures, where the presence of ongoing servicing, collection activities, or risk-transfer features can blur the line between a straightforward financial transaction and a VAT-liable service. In practice, even if receivables are purchased at face value or at a market-based discount, any element of remuneration linked to managing, collecting, or assuming credit risk could potentially trigger VAT.
What to do now
1. Review contracts and pricing – Check how your commissions, arrangement fees, and discount mechanisms are structured and described.
2. Reassess VAT assumptions – Ensure that factoring, financing, and securitization arrangements are correctly classified for VAT.
3. Stay alert for local guidance – The ruling has EU-wide effect, but member states may issue detailed implementation notes.
The takeaway
Whether you call it trade factoring, invoice financing, receivables purchase, or even securitization, the message from Kosmiro suggests that, in most (if not all) situations, if you are remunerated – explicitly or implicitly – for managing, collecting, or bearing risk on receivables, that activity is likely within the scope of VAT. The decision brings welcome clarity, while also highlighting a potential compliance consideration for the financial sector.