On 17 June 2026, the General Court of the European Union handed down a judgment in case T-184/25 – Veronsaajien oikeudenvalvontayksikkö v A Oy on the VAT treatment of loan servicing. The judgment has significant implications for Luxembourg securitisation transactions.
Facts of the case
A Oy is the main establishment of a Finnish banking group and the representative of its VAT group. A large proportion of its property loans were sold to B Oy, its wholly owned subsidiary which does not form part of the same VAT group, at market price, with all rights and obligations passing to B Oy.
Despite the transfer, A Oy remained solely responsible for the management of those loans - handling customer service, monitoring repayments, calculating rates and providing debt collection services - and invoiced B Oy for those services on a cost-plus basis.
A Oy applied to the Finnish Central Tax Board (Keskusverolautakunta) for a tax ruling. The Central Tax Board found the credit management services exempt from VAT. The Finnish Tax Recipients' Legal Services Unit appealed that ruling to the Finnish Supreme Administrative Court, which referred three preliminary questions to the Court of Justice of the European Union (“CJEU”), asking whether the services were exempt under Article 135(1)(b), (c) or (d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (“VAT Directive”).
Findings of the Court
On the first question, the General Court held that the exemption under Article 135(1)(b) of the VAT Directive - covering the "management of credit by the person granting it" - does not apply to the management services provided by A Oy. The Court held that Article 135(1)(b) exempts the management of credit only where it remains linked to the original credit relationship between the lender and the borrower. Once a lender transfers its loans to a third party, that original legal relationship - which gave rise to the right to benefit from the exemption - ceases to exist, even though the original lender continues to perform the management services substantively. The management services then constitute separately invoiced services provided to the transferee for consideration and fall outside the scope of the exemption. This interpretation is confirmed by the objectives of the exemption: the difficulties connected with determining the tax base and the amount of deductible VAT, which typically arise within the original lender-borrower relationship, do not arise where management services are invoiced on a cost-plus basis to the transferee. It is further supported by the principle of fiscal neutrality, which requires that management services invoiced to a credit transferee be treated consistently for VAT purposes, regardless of whether the supplier is the original lender or any other person.
On the second question, the Court held that Article 135(1)(c) of the VAT Directive - covering dealings in credit guarantees and other security for money - does not apply to credit management services, even where the underlying credit serves as a guarantee for a bond issued by another financial institution. Credit management services cannot, as such, be classified as dealings in credit guarantees. Moreover, applying Article 135(1)(c) to such services would render redundant the personal restriction in Article 135(1)(b), which expressly limits the exemption for the management of credit to the person granting it.
On the third question, the Court held that Article 135(1)(d) of the VAT Directive - covering transactions concerning debts - does not apply to credit management services either. That provision concerns transactions involving the actual or potential transfer of ownership of funds, or transactions fulfilling the specific, essential functions of such a transfer - characteristics which credit management services do not possess. As with Article 135(1)(c), extending Article 135(1)(d) to cover such services would equally render the personal restriction in Article 135(1)(b) redundant.
What this means for Luxembourg securitisation transactions
This judgment is of considerable importance for securitisation transactions structured under Luxembourg law. The Luxembourg securitisation framework is widely used by financial institutions to transfer loan portfolios to special purpose securitisation vehicles. Critically, the originator bank typically continues to service those loans after transfer - managing repayments, handling borrower queries and administering associated guarantees - in exchange for a servicing fee.
The General Court has now confirmed that such servicing fees are subject to VAT: the management of credit is only exempt where it forms part of the credit relationship between the current lender and the borrower - a link that is severed upon transfer. Since securitisation vehicles typically carry out VAT-exempt activities, they are generally unable to recover input VAT. Accordingly, any VAT charged on servicing fees represents an irrecoverable cost for the vehicle, potentially increasing the overall cost of the securitisation.
Share on
