EU VAT case law

C did not pay B, and B did not pay A. B assigned its claim to A. Such an assignment constitutes payment to A.  A cannot make a “bad debt adjustment”.  Even if C did not pay A.

Judgment of General Court, 22.04.2026, Mokoryte.

Background

• 3 Romanian companies provided services to one another.
• Company A (subcontractor) provided a service to Company B (contractor). Company B (contractor) provided a service to Company C (developer).
• C filed for bankruptcy and did not pay B.
• B paid A only a portion of the debt.
• For the remaining portion, the companies entered into an assignment of claims. B (assignor) transferred its claim against C to A (assignee).
• C did not pay A.
• A issued five cancellation invoices to C. On this basis, A sought to reduce its tax liability.
• The tax authority refused to grant such a reduction. It argued that only A could make such a reduction, because the adjustment for non-payment (bad debt relief) is available to B.

Reasoning of the General Court

• This case concerns the interpretation of Article 90 of the VAT Directive. According to that provision:

In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

• Pursuant to Article 193, the obligation to pay VAT rests with the person who provided the services. This obligation applies regardless of whether payment has been received. Pursuant to Article 63, the tax becomes due at the time the service is performed. VAT is therefore due to the state from the service provider. If the service provider has not received payment, they may later adjust the tax base. Thus, the right to make an adjustment is closely linked to the taxable transaction and to the remuneration due for that transaction (31–33).
• In this case, two services were provided. First, between A and B. Second, between B and C (34).
• B paid A - partly in cash and partly by assigning his receivable.
• “That assignment of the claim, as such, was not linked to the actual payment or the actual possibility of a future payment of the claim by the debtor, the developer.”
• A recorded in its books that the debt owed to it was “zero.” The value of the receivable and the cash amounts received corresponded to all invoices issued by A (36).