The Contents of Highlights & Insights on European Taxation, Issue 2, 2026

Please find below a selection of articles published this month (February 2026) in Highlights & Insights on European Taxation, plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

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Year 2026, no. 2     

TABLE OF CONTENTS 

DIRECT TAXATION, LEGISLATION

– Council updates EU list of non-cooperative tax jurisdictions

(comments by the Editorial Board) (H&I 2026/44)

INDIRECT TAXATION, CASE LAW

– Kosmiro (C-232/24). Factoring fees and commissions qualify as taxable debt collection services under VAT directive. Court of Justice

(comments by Marja Hokkanen) (H&I 2026/38)

ECHR

– Khadija Ismayilova v. Azerbaijan (no. 4) (71556/16 and 74112/17). Azerbaijan misused tax and business laws to criminalise journalism. European Court of Human Rights

(comments by Edwin Thomas) (H&I 2026/42)

FREE ARTICLE

– Kosmiro (C-232/24). Factoring fees and commissions qualify as taxable debt collection services under VAT directive. Court of Justice

(comments by Marja Hokkanen) (H&I 2026/38)

Facts

The appellant in the main proceedings sold services to its customers, enabling them to immediately access funds corresponding to outstanding receivables and to be released from the obligation to collect those receivables. Factoring applies to undisputed receivables.

The factoring company sold both pledge-based factoring, in which it grants its customers credit against invoice receivables within a total limit determined on the basis of the risk level of the customers' business, and non-pledge-based factoring, in which it grants its customers credit against invoice receivables within a total limit determined on the basis of the risk level of the customers' business. In this context, the factoring company was responsible for issuing payment reminders and for the voluntary collection of pledged receivables.

As a second form of service, the factoring company offered trade factoring services, under which it purchased receivables based on selected invoices from its customers, subject to a maximum limit determined by an assessment of the risk level of the customers' business. Unlike in pledge-based factoring services, where the risk of non-payment remains with the customer, in trade-based factoring services, the risk associated with receivables and thus with non-payment was transferred to the factoring company.

The agreements between the appellant in the main proceedings and its customers provide that the former charges its customers various fees and commissions, including a percentage-based ‘finance commission’ payable in advance on each receivable covered by the arrangement. The amount of the financing commission increases with the credit rating of the customer and of the people in whose name the receivables concerned are held, on the one hand, and with the length of the payment period for the invoices, on the other. In addition to the financing commission, an ‘establishment fee’ and certain other fees and commissions are payable.

Analysis of the judgment

Without commenting on Kosmiro (CJ 23 October 2025, C-232/24 Kosmiro, ECLI:EU:C:2025:820) specifically, it can generally be said that it seems that if an agreement is called a factoring agreement, regardless of its content, according to the Court of Justice of the European Union (hereinafter: 'CJ'), service provided based on that agreement is a debt collection and therefore a taxable service. This appears to be the case, regardless of whether they involve the sale of receivables (so-called 'genuine factoring') or the pledging of receivables to a finance company. However, I would like to reconsider the matter and ask what additional real value is provided to the customer, i.e., why the customer uses a factoring company's services in the first place.

According to legal and economic definitions, factoring is a form of financing in which a company receives financing against its accounts receivable. Factoring is the conversion (discounting) of invoices arising from the sale of goods and services into cash with the help of credit granted by a finance company. Factoring, therefore, is regarded as a financial service that allows a company to immediately convert its accounts receivable into cash. Internationally, factoring is often understood as a general term for all forms of invoice financing, in which accounts receivable are financed either by selling them or by using them as collateral for financing.

The invoices are either pledged or sold to the finance company. The seller receives financing up to an agreed maximum amount (credit limit). The finance company usually charges a factoring fee as a specified percentage of the invoice amount. Other costs include interest on the credit and any arrangement fee for granting or changing the credit limit. Factoring services, however, may vary by jurisdiction. In general, however, invoice factoring involves the seller pledging its invoice receivables as collateral to the finance company, while the credit risk remains with the seller. The seller notes on the invoice that the buyer must pay the invoice to the financier. The factoring company pays the seller the agreed portion of the invoice. The finance company then pays the remainder if the buyer has paid the entire invoice to the financier. Instead of pledging, a company can sell its invoice receivables to a finance company. In this case, the finance company usually bears the risk of the buyers' solvency.

Based on Article 135(1)(b) of the VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (hereinafter: ‘the VAT Directive’), the Member States shall exempt ‘the granting and the negotiation of credit and the management of credit by the person granting it’ and based on subparagraph (d), ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection’.

Certain language versions namely the English and Swedish versions of the Sixth VAT Directive (77/388/EEC) used the term factoring in Article 13B(d)(3), by stating that Member States shall exempt ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring’. Based on the current VAT Directive in force, all language versions of the Directive refer uniformly only to debt collection in Article 135(1)(d) of the VAT Directive. Despite numerous consistent rulings by the CJ, I would like to ask whether factoring really constitutes debt collection.

In its judgment, the CJ stated that there cannot be any service of granting credit if the factoring company purchases the receivables for itself, because after this, there is no debt relationship to finance the client, and the client company does not pay interest or any other consideration for the payment it has received from selling the receivables. Similarly, it is difficult to see why the client company would purchase a debt collection service when it no longer has any debt to collect and no risk associated with the receivables. The receivables and the associated risks have been transferred to the factoring company. For this reason, the idea that it is a matter of debt collection is just as far-fetched.

In order to determine the nature of the service and whether it involves one or more deliveries, it is essential to identify the dominant elements of the delivery in question (see, inter alia, CJ 2 May 1996, C-231/94 Faaborg-Gelting Linien, ECLI:EU:C:1996:184, paragraphs 12 and 14; CJ 27 October 2005, C-41/04 Levob Verzekeringen and OV Bank,ECLI:EU:C:2005:649, paragraph 27, andCJ 10 March 2011, C-497/09, C-499/09, C-501/09 and C-502/09 Bog and Others, ECLI:EU:C:2011:135, paragraph 61 and the case law cited therein). The predominant element must be determined from the point of view of the average consumer and having regard, in the context of an overall assessment, to the importance, not merely quantitative, but qualitative, of the elements of the supply of services (see, to that effect, CJ 10 March 2011, C-497/09, C-499/09, C-501/09 and C-502/09 Bog and Others, paragraph 62). In CJ's case law, the concept of the average consumer appears to be a key tool for assessing the nature of a transaction for VAT purposes (see, inter alia, CJ 19 July 2012, C-44/11 Deutsche Bank, ECLI:EU:C:2012:484).

I would like to raise the question once again: why does the average consumer, or rather the average company, purchase factoring services? If a company requires only debt collection services, it will procure such services from a debt collection agency without selling or pledging its receivables to the service provider. A collection agency does not ‘lend’ to companies. It handles the collection process, and the risk of the receivables remains with the company.

On the other hand, if a company needs to quickly strengthen its cash flow, it will seek financing. Financing may be obtained in various ways, including by taking out a loan. However, borrowing can be problematic for some companies, for example, due to insufficient collateral. In this case, factoring is a viable alternative. For this reason, it is difficult to understand how all factoring services could be deemed debt collection at all times, particularly when the receivables are sold to a factoring company. As stated earlier, it also raises the question of why a company would purchase a debt collection service for itself if the receivables in question have already been sold, and it has no receivables to collect.

Prof. Marja Hokkanen