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European Court of Justice Decision regarding transfer of non-performing debts

We would like to inform you that the European Court of Justice (ECJ) has published on 27 October 2011 its decision in GFKL Financial Services AG ('GFKL') concerning the transfer of non-performing loans to a specialist debt collector. Specifically, whether there was consideration for the transfer, whether any such consideration was taxable or exempt, and how any such consideration should be calculated.

The answer is in line with our previous position on this topic.

ECJ's Conclusion and EY Comments

The ECJ considers that there is no direct link between the economic activity (which the judgment identifies as debt collection) and any consideration. More specifically, the ECJ decided that the purchaser of default debts at a price below the face value of the respective debts does not perform a supply of services for consideration and does not carry out an economic activity.

Argument was heard that the consideration for the debt collection activity might be either the deduction from the economic value, or the ability of GFKL to make a profit. The ECJ concludes that neither of these is sufficiently closely linked to the economic activity to make it a supply for VAT purposes. The deduction is made to reflect the actual amount of the risk being taken on, and this results in a market value being paid for the portfolio.

As a side note, the decision alters the current VAT treatment applicable to the transfer of non-performing receivables implemented under the Romanian legislation based on the MKG decision and also the position taken so far by the Ministry of Finance representatives in this respect.

Sursa: http://www.ey.com

Tags: consideration debts performing transfer decision