No VAT exemption for credit management after sale
18/06/26
A bank (A) grants credit for housing, sells this credit to a group company (B) which uses it to secure the bonds it has issued. A then continues to manage the credit itself for consideration. In the case A Oy (T-184/25), the General Court rules that, in such cases, there is no VAT-exempt (management) service by the person who granted the credit. The General Court's interpretation in the case may have the effect that, in more cases, credit management services provided by banks and other financial institutions will no longer fall within the VAT exemption.
What does this mean for your organisation?
For financial institutions that transfer credit, the consequence appears to be that management services which the original lender continues to perform and invoice to the transferee after the transfer of the credit are, in principle, subject to VAT.
For the transferee, whose transactions are in principle exempt from VAT, the VAT charged (or reverse charged) on the management fee will frequently not be deductible and will therefore constitute a true cost. This increases the costs in such structures. Although the case concerns a Finnish situation, the interpretation of the EU VAT Directive has effect in all EU Member States, including the Netherlands.
Silent assignment
It is apparent from the request for a preliminary ruling and the judgment that the credit is sold, that all the rights and obligations relating to the loans are transferred from A to B, and that the transfer does not require any action on the part of the borrower or the debtor. The ruling of the General Court therefore relates, in principle, to that particular situation. It is not clear whether the same interpretation applies to the scenario of silent assignment that is customary in the Netherlands. Since the General Court links the (VAT-exempt) management to the credit relationship and the legal relationship between the lender and the borrower, it is not entirely clear whether, upon the transfer of the credit by way of silent assignment, the management of credit would be VAT-taxed.
Our PwC Financial Services team would be glad to think along with you. Please feel free to contact us with any questions or for more information.
Background
Transfer of credit
A Oy is the head office of a Finnish bank and is the representative of the VAT group of its group. A large portion of the credit (for housing) granted by A is sold at the market price to B Oy, a wholly owned subsidiary that does not form part of that same VAT group. In that context, all the rights and obligations relating to the credit are transferred to B. The majority of the credit sold serves as security for the bonds issued by B.
Although the credit is transferred, A remains responsible for its management and, for that purpose, carries out a wide range of tasks, such as customer service, administration, the calculation of repayments, interest and commissions, amendments to the loan, and decisions on, for example, refinancing. In doing so, A acts on behalf of B towards the borrowers and receives, for this management, a market-conform consideration on the basis of the actual costs plus a profit margin (cost-plus)..
The question referred to the General Court
The Finnish Central Tax Board had ruled that this credit management constituted a VAT-exempt financial service. The Finnish tax authority challenged this. According to it, the VAT exemption for "management of credit by the person granting it" applies only where the same party is both the lender and the credit manager, and A was, after the sale, no longer the lender. The Finnish supreme administrative court referred questions for a preliminary ruling concerning the scope of art. 135(1)(b), (c) and (d) EU VAT Directive.
No VAT-exempt supply of services
The VAT exemption for the management of credit and the wording "by the person granting it" do not provide an clear answer across the various language versions of the EU VAT Directive. The General Court interprets the exemption strictly and links the management to the credit relationship between the lender and the borrower. In doing so, the General Court appears to consider the exemption not applicable to services performed outside that relationship. As soon as the original lender transfers the credit to a third party and that original lender continues to carry out the management, the management falls outside the legal relationship between the lender and the borrower. The VAT exemption does not apply in that case and appears to operate only in the relationship between the current lender and the borrower.
The General Court further clarifies that the VAT exemptions for entering into sureties and other security and guarantee commitments, and for transactions concerning debts, are likewise not applicable.
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