Keywords
Summary

Keywords

1. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Economic activities for the purpose of the Sixth Directive — Meaning — Purchase of debts with assumption of the risk of the debtors' default — Covered — (Council Directive 77/388, Arts 2, 4 and 17)

2. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Exemptions provided for by the Sixth Directive — Banking transactions referred to in Article 13B(d)(3) — Exclusion of debt collection and factoring — Meaning — Purchase of debts with assumption of the risk of the debtors' default — Covered — (Council Directive 77/388, Art. 13B(d)(3))

Summary

1. On a proper construction of the Sixth Directive (77/388) on the harmonisation of the laws of the Member States relating to turnover taxes, a business which purchases debts, assuming the risk of the debtors' default, and which, in return, invoices its clients in respect of commission (true factoring) pursues an economic activity for the purposes of Articles 2 and 4 of that directive, so that it has the status of taxable person and thus enjoys the right to deduct tax under Article 17 thereof.

First, the factor indisputably supplies a service to the client, consisting essentially in relieving him of the debt-recovery operations and of the risk of the debts not being paid. Second, in return for that service received by him, the client owes payment to the factor, corresponding to the difference between the face value of the debts which he has assigned to the factor and the amount which the factor pays him for the debts.

see paras 49, 59, operative part 1

2. An economic activity by which a business purchases debts, assuming the risk of the debtors' default, and, in return, invoices its clients in respect of commission (true factoring), constitutes debt collection and factoring within the meaning of the final clause of Article 13B(d)(3) of the Sixth Directive (77/388) on the harmonisation of the laws of the Member States relating to turnover taxes and is therefore excluded from the exemption laid down by that provision.

In accordance with its objective character, the essential aim of factoring is the recovery and collection of debts owed to a third party. Therefore, 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.

see paras 77, 80, operative part 2