VAT exemption for securitised loan management may be denied
25/02/26
Today, AG Brkan issued her opinion on the VAT exemption for the management of credit by the person granting it in loan securitisation transactions. In case T-184/25 (A Oy), AG Brkan concludes that credit management services provided by the originator after it transfers its loans to a securitisation vehicle are not VAT-exempt under any provision of art. 135(1) EU VAT Directive.
What this means for your organisation
If the EU General Court follows the AG's opinion, special purpose vehicles (SPV) that acquire loans as part of e.g. securitisation or covered bond transactions should expect that credit management services provided to them by the originator will most likely no longer be exempt from VAT. Since the securitisation SPV (whose activities are typically VAT-exempt) cannot deduct input VAT, this would likely result in an irrecoverable VAT cost in the structure.
Parties involved in loan securitisation structures should review their existing arrangements and assess the potential VAT impact. It is important to note that this is an Advocate General's opinion, not a final judgment of the EU General Court. The EU General Court is not bound by the AG's opinion, though it frequently follows them. We will continue to monitor this case closely.
Background
A Oy is the head office of a Finnish Bank X and leads the VAT group of the Y group in Finland, which among others grants VAT exempt credit for the financing of housing. After the credit has been drawn down, a large proportion of that credit is immediately sold to B Oy, a wholly owned subsidiary of A Oy. That sale results in the transfer to B Oy of all the rights and obligations connected with the credit. Most of the credit sold to B Oy serves as security for bonds issued by that undertaking.
Despite the full legal and economic transfer, A Oy continues to perform the complete management of the loans, including customer service, administration, repayment and interest calculations, loan modifications and refinancing decisions, on identical terms as if the loans had remained on its own books. For the management of that credit, A Oy receives remuneration from B Oy at market price.
The Finnish Central Tax Board initially ruled that A's credit management services were VAT exempt as management of credit by the person granting it. The Tax Recipients' Legal Services Unit challenged this, arguing that after selling the loans, A was no longer the person granting the credit and therefore could not benefit from the VAT exemption for the management of credit by the person granting it. The Finnish Supreme Administrative Court referred three questions to the EU General Court.
First question: Art. 135(1)(b) - management of credit by the person granting it
The main question referred to the EU General Court was whether the VAT exemption for "management of credit by the person granting it" is applicable to credit management services rendered to an SPV by an originator selling credit granted by it to such SPV.
AG Brkan noted that a literal interpretation of the different language versions of art. 135(1)(b) EU VAT Directive does not provide clarification. Some versions refer to the original lender, whilst others refer to the current lender. Since the literal and systematic approaches were inconclusive, she turned to a teleological interpretation.
The AG concluded that the VAT exemption should be reserved for the current lender only. First, the principle of fiscal neutrality requires that there should be no difference in VAT treatment based on whether a lender outsources credit management to the original grantor or to any other third party. Second, if the VAT exemption applied to the original lender, any lender could circumvent the restriction by having a third party servicer formally grant the credit and then immediately selling it, thereby making any outsourced credit management VAT-exempt. Third, the credit management exemption is intended to make sure that services provided in the context of a credit relationship are exempt, while excluding the outsourcing of credit management. In such cases the VAT exemption should only apply where management is ancillary to the granting of credit by the current lender.
Second question: Art. 135(1)(c) - credit guarantees and securities
The referring court also asked whether, as a fallback, the credit management services could be exempt under art. 135(1)(c) EU VAT Directive as dealings in credit guarantees or other securities, given that the loans serve as security for bonds issued by B Oy.
The AG rejected this idea. She reasons that art. 135(1)(b) EU VAT Directive is the lex specialis for credit management, and allowing art. 135(1)(c) to apply would render the inclusion of credit management in art. 135(1)(b) devoid of practical effect. Moreover, it would circumvent the scope laid down in art. 135(1)(b), which limits the VAT exemption for credit management to the person granting the credit.
Third question: Art. 135(1)(d) - transactions concerning debts
Finally, the AG examined whether credit management could be VAT exempt under art. 135(1)(d) as transactions concerning payments or debts. She again argues the lex specialis nature of art. 135(1)(b) to rule out a direct application of art. 135(1)(d). The AG also considered whether the credit management could indirectly benefit from the VAT exemption as a service ancillary to the VAT-exempt sale of credit but rejected this as well. She reasoned that such an approach would undermine the lex specialis character of art. 135(1)(b), that the VAT-exempt status of the credit sale itself is doubtful under EU law, and that the credit management constitutes an independent service rather than a service ancillary to the sale, since the purchaser could transfer the management to another party without affecting the credit acquisition.
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