Borenius Obtained a Significant Supreme Administrative Court Ruling Changing the VAT Treatment of Factoring Fees

Borenius successfully represented a Finnish company in a preliminary ruling procedure concerning the VAT treatment of factoring fees. The Supreme Administrative Court issued its ruling (SAC 2026:8) on 6 February 2026, following the ECJ's preliminary ruling on 23 October 2025 (case C-232/24, Kosmiro). The SAC's ruling clarifies how the ECJ's judgment affects the VAT treatment of factoring in Finland.

Factoring involves transferring receivables to a factoring company in exchange for immediate liquidity. In invoice factoring, receivables serve as collateral for financing and the customer retains risk; in trade factoring, receivables are sold and the factor assumes insolvency risk.

The case concerns a factoring company engaging in both types of factoring. The company appealed to the SAC to overturn the Central Tax Board's decision that certain fees (financing commission, limit fee, quick payment fee, credit rating fee, and arrangement fee) were wholly or partially consideration for VAT-exempt financial services. The company argued these fees constitute consideration for VAT-taxable services such as debt collection and receivables administration.

The SAC had doubts about the proper VAT treatment of these fees under the VAT Directive and ECJ case law and referred questions to the ECJ concerning factoring commissions and arrangement fees – clarification of which would be sufficient to assess the treatment of the other fees.

The SAC followed the ECJ ruling and overturned the Central Tax Board's decision, holding that all fees relating to factoring – for both invoice and trade factoring – constitute consideration for taxable debt collection services rather than being partially consideration for VAT-exempt financial services.

The SAC held that both the factoring commission and the arrangement fee constitute consideration for a VAT-taxable service relating to debt collection that is to be regarded as a single indivisible supply. Furthermore, the ECJ's judgement and its reasoning also support treating the other fees at issue (limit fees, fees for quick payment, and credit rating fees) as taxable payments subject to VAT.

The SAC confirmed that although the VAT Act does not contain a specific provision on the taxability of debt collection, the VAT Directive has direct effect in accordance with the ECJ's judgement, and therefore the VAT Act must be interpreted in accordance with the VAT Directive and ECJ case law.

The SAC ordered the Tax Administration to compensate the company's legal costs in the amount of EUR 50,000 – particularly significant given that the matter originated from an advance ruling application where parties typically bear their own costs.

The SAC's ruling brings welcome legal certainty to the VAT treatment of factoring in Finland, confirming that factoring activities are to be treated in their entirety as taxable debt collection services, fully aligning with the ECJ's interpretation of the VAT Directive.

The ruling is significant as it clarifies that the Finnish VAT Act's exemption for 'other provision of financing' must be interpreted narrowly in accordance with the VAT Directive and ECJ case law.

For factoring companies operating in Finland, the ruling establishes that all factoring fees – including factoring commissions, arrangement fees, limit fees, fees for quick payment, and credit rating fees – are subject to VAT as consideration for debt collection services. Factoring companies should review their VAT treatment and ensure that all such fees are treated as taxable going forward. As taxable supplies, these services also entitle the factoring company to deduct input VAT on related costs, which have not been fully recoverable if the services were treated as VAT-exempt.

The SAC's application of the Kosmiro judgment confirms that where factoring arrangements relieve the client of the collection of receivables – whether through active collection services or through sale with risk transfer – the principal characteristic is debt collection, rendering the service taxable. This aligns with the ECJ's approach, where both factoring models examined involved the factor assuming responsibility for collection of selected receivables.

It is important to recognise that "factoring" encompasses a wide range of structures designed to unlock short-term liquidity through accounts receivable. Whilst the ruling provides clear guidance for certain factoring arrangements, it raises challenging questions about the boundaries of what constitutes "factoring" for VAT purposes. The SAC applied the ECJ's reasoning to both trade factoring and invoice factoring, treating them as debt collection services despite the financing element being a significant component of the arrangements.

The key appears to be whether the arrangement enables the client to transfer responsibility to a third party for the recovery and collection of receivables, which both courts identified as the essential aim of factoring. Where financing is provided alongside debt collection, the courts found that the financing is not independent of the debt collection service but rather a corollary to it, with the result that the entire arrangement constitutes a single indivisible taxable supply.

The ruling creates practical difficulties for businesses in determining when a receivables-based financing arrangement crosses the line into "factoring" subject to VAT. The challenge extends beyond the scope of factoring structures to other financing forms that may involve some element of receivables collection or administration. Businesses using such structures should carefully assess whether their arrangements involve the transfer of debt collection responsibilities, as this may bring them within the scope of this ruling.

Whilst the ruling brings welcome clarity to the VAT treatment of certain factoring arrangements, it inevitably raises further questions for operators whose business models incorporate varied elements of financing, debt collection, and risk transfer. We are pleased to discuss the implications for specific structures.

If you have any questions regarding this Legal Alert, please feel free to contact any of Borenius' attorneys or those with whom you usually work.