Germany: Reduction of the basis for assessment of VAT due to irrecoverable debts, other VAT developments

CJEU held that the basis for assessment for VAT was not reduced as a result of related irrecoverable debts

Due to irrecoverable debts

The Court of Justice of the European Union (CJEU) held (9 February 2023 – case C-482/21 – Euler Hermes) that the basis for assessment for value added tax (VAT) was not reduced as a result of related irrecoverable debts.


The taxpayer, a Hungarian insurance company, insured policyholders for unpaid customer debts. The amount of the compensation was generally 90% of the value of the unpaid debts including VAT. Under the insurance contract, the taxpayer became the legal successor of its policyholders with regard to such irrecoverable debts.

The taxpayer sought a refund of VAT with respect to the transactions to which the irrecoverable debts related. The CJEU denied the refund, finding that part of the debts for which the taxpayer granted compensation were indeed received by the taxable customers as consideration for the taxable transactions in question, with the result that it cannot be regarded as being the subject of “non-payment” within the meaning of Article 90 (1) of the VAT Directive. 

KPMG observation

The practical handling of this issue in Germany may contravene the principles of the CJEU ruling. For example, in the case of the assignment of a debt less than the nominal value, the basis of assessment is determined on the basis of the actual expenses of the recipient of the supply.

Read a February 2023 report [PDF 449 KB] prepared by the KPMG member firm in Germany

Other recent VAT developments that may affect businesses in Germany include the following items:

  • CJEU submission on the taxation of vouchers (BFH, resolution of 3 November 2022, XI R 21/21)
  • Reference for a preliminary ruling in relation to rights of direct action (BFH, resolution of 3 November 2022, XI R 6/21)
  • Heat supplied from a biogas plant (BFH, ruling of 9 November 2022, XI R 31/19)
  • Passing on costs is not a supply subject to VAT (BFH, resolution of 11 October 2022, XI R 12/20) 


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