EU General Court clarifies limits of VAT adjustment in debts claimed through assignments

A recent judgment of the EU General Court – Case T-233/25, Mokoryte – marks an important development in the interpretation of Article 90(1) of the VAT Directive by addressing a nuanced but practically significant issue: whether a subcontractor that acquires a debt claim through assignment may reduce its VAT taxable amount when that claim becomes irrecoverable.

For clarifying purposes, a “VAT debt claimed through assignment” usually means someone is asserting a right to collect or recover a VAT-related debt because that right was transferred to them by another party involved in the supply chain.

Background to the dispute

The case arose from a typical construction chain involving three parties:

• A developer commissioning works
• A contractor performing those works
• A subcontractor engaged by the contractor

The developer became insolvent and failed to pay the contractor. In turn, the contractor failed to pay the subcontractor. To settle its debt, the contractor assigned its claim against the developer to the subcontractor.

When the developer’s insolvency proceedings concluded without payment, the subcontractor sought to reduce its VAT liability, arguing that the assigned claim had become irrecoverable. Romanian tax authorities rejected this request, leading to litigation and a preliminary reference to the EU courts.

Legal issue and interpretation of the VAT Law

At the heart of the case was the interpretation of Article 90(1) of the VAT Directive 2006/112/EC which allows a reduction of the taxable amount in cases of non-payment.

The referring court asked whether this provision permits a subcontractor-assignee—who was not the original supplier in the transaction—to adjust VAT where an assigned claim remains unpaid.

The General Court held that the content of the VAT legislation precludes a subcontractor who has acquired a claim by assignment from adjusting the VAT taxable amount when that claim is not paid, essentially stating that the right to reduce VAT does not transfer with the assignment of a debt as VAT adjustments are personal to the original supplier.

In details, the General Court clarified that:

• The VAT adjustment is tied to the original taxable person who carried out the original supply and is liable for VAT on that transaction.
• The Court viewed the assignment itself as having economic value as the subcontractor had received full consideration for its services.
• The principle of fiscal neutrality ensures that VAT reflects the consideration actually received by the taxable supplier and does not extend to third-party assignees who were not party to the taxable transaction

Impact of the VAT ruling

By confirming that VAT relief for non-payment remains strictly confined to the original taxable person, the judgment has practical consequences for businesses, which can be summarised as follow:

• Debt assignment structures cannot be used to shift VAT recovery rights
• Subcontractors accepting assigned claims bear the economic risk of insolvency without VAT relief
• Parties must carefully structure transactions where payment risk exists

If your company is engaged in a supply chain involving assignments and requires additional information, please do not hesitate to get in touch.