CJEU clarifies VAT treatment of creditor actions – the Svilosa case (C-535/24)

When chivalry meets VAT

In European value-added tax (VAT) law, one occasionally encounters a case that reads less like a fiscal dispute and more like a morality tale. Such is the Svilosa judgement[1], wherein the Court of Justice of the European Union (CJEU) was called upon to determine whether an act of assistance – gallant, well-intentioned, yet unsanctioned – might nonetheless attract the ever-vigilant gaze of tax authorities.

Could a company’s self-initiated efforts to right a wrong, to recover what was justly its own, be construed as a taxable “supply of services”? The Court with customary clarity and a dash of judicial restraint, answered with a resounding NO. 

The facts: a loan, a concert and a misadventure

Svilosa, a Bulgarian holding company of respectable repute, advanced funds to a charitable foundation intent on staging a concert for children affected by war – a noble endeavour by any measure. Alas, the performance never graced the stage: the monies, it seems, found their way elsewhere.

Unwilling to let matters rest, Svilosa engaged the services of American lawyers to recover the funds. This act of commercial self-preservation would provide the spark for the VAT controversy.

The Bulgarian tax authority denied the company its input VAT deduction on the legal fees and suggested that Svilosa had, in effect, rendered a free service to the foundation – a generosity that under article 26(1)(b) of the VAT Directive[2] could itself be taxable, and that it had not performed a service for consideration.

Of consideration and common sense

The Court simply provided a reminder that a supply for a consideration requires a direct link between the service rendered and the consideration received. In plainer words: one must act for another and be paid in return. However, Svilova never received any remuneration, nor had it been asked by the foundation to intervene. It acted not out of contract but conviction, seeking merely to protect its own financial interests. Accordingly, there was no taxable supply of services, merely a prudent creditor asserting its rights.

The perils of “free supplies”

The Court dismissed the notion that Svilosa’s actions might qualify as a free supply for non-business purposes. The company’s endeavours were undeniable linked to its economic activity; they were, in every sense, business-minded, even if they bore the faint perfume of benevolence. The Court would not, is seems, allow the tax authorities to mistake diligence for charity.

Reflections

1. A triumph for logic. The Svilosa case re-affirms that VAT is creature of reciprocity – it arises only where there is a meeting of minds and money. A solitary act of prudence, however noble, is not a taxable event.
2. A caution to the zealous. Tax authorities occasionally stretch art. 27 in their enthusiasm, seeking to tax every gesture of assistance. Svilosa politely curtails this enthusiasm: business remains within the commercial sphere, and not every unremunerated deed is a taxable one.
3. Guidance for the discerning practitioner. For holding companies, creditors, and international groups, Svilosa provides comfort. Where actions are taken to safeguard one’s economic interests, even if they incidentally benefit the other, they do not create VAT obligations. Input VAT on related legal fees, moreover, may remain deductible, provided the activity belongs squarely within the taxable enterprise.

A final word

The Svilosa decision, viewed through the polished glass of European case law, stands tall to the Court’s steady insistence that VAT follows economic reality, not appearances.

It reminds us that a company’s self-help is not an act of hidden generosity but of prudent stewardship. In the grand theatre of VAT law, Svilosa ensures that one may still do the right thing – recover one’s losses, preserve one’s interests – without the fear of being taxed for one’s manners.

A most civilised outcome indeed.

 

[1] ECJ 2 October 2025 C-535/24 (Svilosa AD)

[2] Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.

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Toon Hasselman is an experienced (30 years) high level VAT and customs specialist to both national and international companies. He provides simple and practical solutions, quick “outside the box” alternatives if necessary, and promotes a no-nonsense approach with conclusive solutions at a fair cost. Toon is also the Global Vice Chair of the GGI Indirect Taxes Practice Group.