# FG Düsseldorf on VAT in Re-Factoring

> FG Düsseldorf denies taxable factoring where collection remains with the seller; appeal pending before the BFH.

Source: https://www.mtrlegal.com/en/fg-duesseldorf-vat-re-factoring/ · Language: en · Updated: 2026-10-20

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## FG Düsseldorf on the VAT Treatment of a Re-Factoring Model

By judgment of 27 June 2025, the Finanzgericht Düsseldorf (Fiscal Court Düsseldorf) held that the purchase of receivables in the context of a re-factoring transaction is not to be classified as a taxable factoring service provided by the second factor if the actual collection of the receivables is transferred back to the seller of the receivables. In the court’s view, the decisive factor was that the Dutch sister company did purchase receivables and assume the default risk, but did not itself carry out the collection of the receivables.

The decision concerns the [reduction of input VAT deduction](https://www.mtrlegal.com/wiki/vorsteuerabzug/) claimed by a German factoring company for 2015. The judgment bears the ECLI reference ECLI:DE:FGD:2025:0627.5K125.24U.00. The Finanzgericht Düsseldorf dismissed the action in full and ordered the claimant to bear the costs of the proceedings.

Leave to appeal on points of law was granted due to the matter’s fundamental significance and for the further development of the law regarding the concept of factoring. The appeal has been filed and is pending before the Bundesfinanzhof (BFH, Federal Fiscal Court) under case number V R 47/25. The judgment is therefore not final.

## Starting Point of the Proceedings

### The Claimant’s Factoring Business

The claimant, a GmbH, operated, according to its articles of association, the purchase and sale of receivables. In the year in dispute, it provided [factoring services](https://www.mtrlegal.com/wiki/factoring/) to business customers based in Germany. It purchased receivables from these so-called connected customers, assumed responsibility for collecting the receivables and bore the debtor default risk.

The remuneration received from this, in particular factoring fees, was declared by the claimant as taxable supplies. Accordingly, it claimed the full input VAT deduction for its input services.

### Further Transfer of Receivables to a Dutch Sister Company

For refinancing purposes, the claimant transferred certain receivables, which had previously been assigned to it by the connected customers, to a sister company based in the Netherlands. The parties had entered into several agreements for this purpose, including a receivables purchase agreement, supplementary special agreements and a service agreement.

Under the receivables purchase agreement, the Dutch company was to purchase receivables and pay the purchase price concurrently against transfer of the receivables. According to the findings, only performing (non-distressed) receivables with certain quality characteristics were transferred. In addition, the Dutch company assumed the risk of insolvency of the respective debtors.

The assignment of the receivables was not disclosed to third parties, in particular not to the debtors.

## Contractual Structure and Actual Implementation

### Receivables Purchase Agreement with Assumption of Default Risk

The receivables purchase agreement provided that the claimant was to continuously offer the Dutch sister company receivables arising from supplies of goods and services of its connected customers for purchase. The Dutch company paid a purchase price for this, calculated on the basis of the amount of the receivable less a discount.

Under the contractual provisions, this discount included in particular:

- interim interest for the actual term of the receivable,
- a factoring fee,
- fee components for del credere and collection pursuant to the special agreements.

Under the agreement, the Dutch company was generally also responsible for dunning and further legal enforcement measures for purchased receivables.

### Service Agreement and Transfer Back of Receivables Collection

In addition to the receivables purchase agreement, there was a separate service agreement. Under this agreement, the Dutch company commissioned the claimant to perform tasks in connection with accounts receivable accounting and dunning. In particular, the claimant assumed the allocation of incoming payments, the monitoring of unclear incoming payments and due receivables, and the preparation of reminders.

According to the court’s findings, it was undisputed between the parties that collection of the transferred receivables continued to be carried out by the claimant and not by the Dutch sister company.

Of particular importance in this respect was § 1 No. 2e of the service agreement. Under this provision, for the purpose of collecting the receivables, all receivables previously assigned to the Dutch company were reassigned back to the claimant. The claimant was therefore entitled to collect the receivables in its own name. At the same time, responsibility for dunning and accounts receivable accounting was transferred to it.

## The Claimant’s Position

### Assumption of Taxable Factoring Services by the Dutch Company

In its VAT returns, the claimant assumed that it had received factoring services from the Dutch sister company. These services were taxable in Germany and, following exercise of the option to tax, subject to VAT.

On this basis, the claimant treated itself as the recipient of the service liable for VAT under § 13b UStG (German VAT Act). It claimed an input VAT deduction in the same amount. Since it assumed that it provided only output supplies entitling it to deduct input VAT, it claimed the input VAT deduction in full.

### Argument Based on the CJEU Case Law on Factoring

The claimant relied in particular on the case law of the Court of Justice of the European Union on factoring, especially the [MKG-Kraftfahrzeuge-Factoring judgment](https://curia.europa.eu/juris/liste.jsf?num=C-305/01) of 26 June 2003, C-305/01. In its view, the principles of that decision were also applicable to the present re-factoring structure.

It argued that factoring should be understood as a service of its own kind. According to this view, collection of the receivables is not necessarily the sole decisive feature. In the case of a specialised factoring company, it may be appropriate for the collection of receivables to remain with the original factor because that entity has the structures required for this purpose.

The claimant considered the economic focus of the agreements to lie in the refinancing and in the assumption of default risk by the Dutch company. It concluded from this that the transfers of receivables to the Dutch company did not result in transactions detrimental to input VAT deduction.

### In the Alternative, Classification as a Non-Taxable Transaction or Incidental Transaction

In the event that no factoring services by the Dutch company were assumed, the claimant argued in the alternative that the assignments of receivables were not taxable. Economically, the structure was comparable to the provision of security, because the receivables had been transferred in connection with obtaining liquidity.

It also argued that any transactions involving receivables should in any event be treated as incidental transactions. They should therefore not be taken into account when determining an input VAT apportionment ratio. In any event, the basis should not be the gross amounts of the receivables, but a margin.

## Position of the Tax Authorities

### No Factoring Service Without Actual Collection of Receivables

The tax authorities assessed the service relationships differently. Following the external tax audit, it was not the Dutch company that provided taxable factoring services to the claimant. Rather, the claimant had provided other services to the Dutch company in the form of assignments of receivables.

The place of supply of these other services was in the Netherlands, since the recipient of the service was established there. The transactions were therefore not taxable in Germany. Had they been carried out in Germany, they would have been VAT-exempt under § 4 No. 8 letter c UStG.

### Input VAT Reduction Due to Foreign Transactions Detrimental to Input VAT Deduction

The tax authorities assumed that the claimant had in part carried out output transactions that preclude input VAT deduction. The input VAT deduction from input services was therefore partially excluded pursuant to [§ 15 para. 2 sentence 1](https://www.gesetze-im-internet.de/ustg_1980/__15.html) No. 2 UStG.

The apportionment method was determined by the ratio of the receivables sold to the Dutch company to the total portfolio of receivables. For the year in dispute, the findings showed a ratio of 30 to 70 per cent.

The tax authorities rejected the application of a margin-based method requested by the claimant. They likewise did not consider the simplification rule in § 43 No. 1 UStDV (German VAT Implementing Regulation) to be applicable.

## Decision of the FG Düsseldorf

### Dismissal of the Action and Confirmation of the Input VAT Reduction

The Finanzgericht Düsseldorf followed the view of the tax authorities and dismissed the action. The VAT assessment notice for 2015 was lawful and did not infringe the claimant’s rights.

In the court’s view, the defendant was entitled to reduce the input VAT deduction. To that extent, the claimant had used input services to carry out transactions abroad which, if hypothetically carried out in Germany, would have been VAT-exempt. Under § 15 para. 2 sentence 1 No. 2 UStG, this leads to the exclusion of input VAT deduction insofar as the input services are economically attributable to those transactions.

### No Taxable Factoring Services by the Dutch Company

The decisive factor for the court was that the Dutch sister company had in fact not assumed collection of the receivables. The assumption of default risk was not sufficient for this purpose.

It is true that the receivables purchase agreement contained provisions under which the Dutch company was to assume dunning and legal enforcement measures. In the court’s view, however, this obligation was transferred back to the claimant by the service agreement. Economically, collection of the receivables therefore remained with the claimant.

The court emphasised that, under VAT law, the actual economic circumstances are generally decisive. The civil-law contractual arrangement alone is not determinative if it does not accurately reflect economic reality.

### Classification as a VAT-Exempt Transaction in Dealings with Receivables

The Senate did not classify the purchase of receivables without assumption of the actual collection of the receivables as a factoring service or as debt collection. Rather, it constituted a transaction in dealings with receivables within the meaning of § 4 No. 8 letter c UStG or Art. 135 para. 1 letter d MwStSystRL (EU VAT Directive).

Under these provisions, transactions in dealings with receivables are generally exempt from VAT; debt collection is excluded from this exemption. In the court’s view, this exception to the exemption requires that the service provider actually relieve the previous holder of the receivable of collection. The mere acquisition of a receivable and assumption of the default risk were not sufficient for this purpose.

In this respect, the Senate relied primarily on the CJEU’s MKG-Kraftfahrzeuge-Factoring judgment of 26 June 2003. From that decision, it derived that factoring as debt collection is characterised precisely by activities aimed at bringing about payment of a monetary debt. For this purpose, the assignee must actually provide collection services beyond acquiring the receivable.

## No Non-Taxable Provision of Security

### Distinction from the BFH Case Law on Transfers by Way of Security

The claimant had relied on the case law of the Bundesfinanzhof on transfers by way of security, in particular the judgment of 6 October 2005, V R 20/04. According to that case law, the transfer of movable assets for security purposes while creating a constructive possession arrangement does not yet constitute a supply; a supply arises only upon realisation of the collateral.

However, the Finanzgericht Düsseldorf did not consider this case law transferable to the case in dispute. The case of a transfer of movable assets by way of security was not comparable to the assignment of receivables under the contractual structure at issue.

In addition, under the service agreement, the claimant was not involved in collecting the receivables only upon the occurrence of an enforcement event. Rather, it was commissioned from the outset with the collection of all receivables. Moreover, the receivables were reassigned back to it for the purpose of collection.

## No Application of § 43 No. 1 UStDV

### No Own Output Transactions of the Claimant as the Basis of the Assigned Receivables

The court also rejected the application of the simplification rule in § 43 No. 1 UStDV. Under that provision, certain VAT-exempt transactions involving monetary receivables may, subject to strict conditions, be disregarded in the apportionment of input VAT.

In the Senate’s view, these conditions were not met. The assigned receivables were not based on the claimant’s own transactions that would have entitled it to deduct input VAT. Rather, the claimant had transferred onward receivables that originated from supplies of goods or services by its connected customers.

The receivables were therefore based on third-party transactions. For this reason, the court held that § 43 No. 1 UStDV did not apply.

## Input VAT Apportionment Based on Sold Receivables and Total Portfolio

### Appropriate Apportionment Method According to the Court

The Finanzgericht also confirmed the apportionment key used by the tax authorities. The relevant factor was the ratio of the sold receivables to the total portfolio of receivables. In the year in dispute, this ratio was 30 to 70 per cent.

Under § 15 para. 4 UStG, where input services are used for mixed purposes, the portion of input VAT that is economically attributable to transactions detrimental to input VAT deduction is not deductible. The entrepreneur may determine the non-deductible partial amounts by way of an appropriate estimate. A turnover-based key is permissible only if no other economic attribution is possible.

The Senate considered the receivables-portfolio key to be appropriate. A more precise apportionment method was not apparent in the case in dispute.

### Rejection of the Margin-Based Method

The court rejected the margin-based method requested by the claimant. Such a method may be relevant in certain banking constellations under the BMF-Schreiben (Federal Ministry of Finance circular) cited by the claimant on apportioning input VAT deduction at credit institutions.

However, these principles were not transferable to the claimant as a factoring company. Credit institutions with complex organisational structures and diverse transactions from lending, securities and other businesses were not comparable with the claimant as a factor and seller of receivables.

## Significance of the Decision for Re-Factoring Structures

### Distinction Between Factoring and Transactions in Receivables

The decision illustrates the importance of the actual assumption of receivables collection for VAT classification. According to the view of the FG Düsseldorf, there is no taxable factoring service by the purchaser of receivables if collection of the receivables remains contractually or economically with the seller of the receivables.

For the classification, it was not solely decisive that the Dutch company assumed the default risk. What was decisive was that it did not actually relieve the claimant of collecting the receivables.

The court thus draws a clear distinction between:

- VAT-exempt dealings with receivables,
- taxable debt collection,
- and a factoring service which, in its view, requires actual relief from the collection of receivables.

### Appeal Proceedings Before the BFH

Leave to appeal on points of law was granted in the operative part of the judgment and the appeal is pending before the Bundesfinanzhof under case number V R 47/25. The judgment is not final. The Bundesfinanzhof will thus have the opportunity to further clarify the VAT classification of such re-factoring structures and the concept of factoring.

The Finanzgericht Düsseldorf did not publicly announce the judgment until 10 March 2026 via its March 2026 court newsletter. This occurred around eight and a half months after pronouncement.

## Classification of the Commentary on the Judgment

In the published commentary, the decision is assessed critically. According to the commentary, the claimant was economically active exclusively as a factoring company. From this perspective, the transfers of receivables had no independent economic substance, but were directly connected with the factoring activities entitling it to deduct input VAT.

The commentary points out that the full input VAT deduction would have been preserved in other constellations, for example if collection of the receivables had been transferred to the Dutch company, if loan refinancing without a shift of risk had been chosen, if the receivables had been receivables of the claimant against its own customers, or if the recipient of the service had been established in a third country.

In particular, it is criticised that the administrative view, followed by the Finanzgericht, resulted in the construction of a barter-like transaction with an additional cash payment. Under this view, the client sells the receivables VAT-exempt, while the factor, as consideration, grants a VAT-exempt loan and pays the purchase price. The commentary considers this analysis economically unconvincing and notes that there has not yet been any supreme court decision on the legal question relevant to the case in dispute.

## Tax Law Advice on Complex VAT Issues

The decision of the FG Düsseldorf shows that the VAT assessment of factoring and re-factoring structures can depend significantly on the specific contractual arrangements and their actual implementation. This applies in particular to the distinction between taxable debt collection, VAT-exempt transactions in dealings with receivables and the consequences for input VAT deduction.

MTR Legal Rechtsanwälte advises companies, investors and high-net-worth individuals on tax law, including VAT issues in financing, receivables and corporate structures. Further information can be found at [Legal advice in tax law](https://www.mtrlegal.com/rechtsberatung/steuerrecht/).