Comments on GC T-657/24: VAT exemption for credit intermediation applies when the intermediary searches for and recruits customers

VAT Exemption for Financial Services: Services ancillary to financial services are generally exempt from VAT under Article 135(1)(b) of the VAT Directive, which benefits financial institutions by allowing them to avoid VAT charges from service providers.
Court Ruling on Credit Intermediation: In case T-657/24, the Portuguese financial intermediary Versãofast claimed VAT exemption was not applicable due to its non-contractual role with the bank. However, the court ruled that the exemption applies broadly to credit intermediation services, emphasizing the economic function of the service over legal formalities.
Implications for Intermediaries: The court’s decision underscores that both professional and non-professional intermediaries can qualify for VAT exemption, provided their activities contribute to the conclusion of credit agreements, regardless of their formal relationship with financial institutions or their level of authorization.

Source MDDP

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Case Overview and VAT Exemption: The Portuguese company Versãofast, engaged in credit brokerage for home loans, was assessed by tax authorities for improperly deducting input VAT. The case examined whether its services qualify as “negotiation of credit” under Article 135(1)(b) of the VAT Directive, which provides VAT exemptions for credit intermediation activities.
Court’s Ruling on Mediation Activities: The General Court ruled that Versãofast’s activities do fall under the VAT exemption for credit intermediation, emphasizing that the purpose of mediation is to facilitate agreements between parties. The court clarified that the exemption applies based on the nature of the services provided, rather than the intermediary’s influence over contract terms or the existence of a direct contractual relationship with the parties involved.
Implications for VAT Compliance: This ruling reinforces the principle that VAT exemptions should be interpreted strictly, emphasizing that activities aimed at bringing parties together for credit agreements, even without direct influence on contract conditions, qualify for exemption. It highlights the importance of recognizing the role of intermediaries in facilitating credit agreements within the framework of VAT law.

The General Court ruled that the VAT exemption for loan intermediation applies when an intermediary, such as Versãofast, actively searches for and recruits customers for home loan agreements. This includes pre-contractual activities and communication with credit institutions, emphasizing the intermediary’s role in facilitating these agreements.
The court noted that receiving a commission from credit institutions is a key factor in establishing the VAT exemption, regardless of whether the intermediary has the authority to conclude credit agreements on behalf of those institutions. The inability of the intermediary to influence the terms of credit offers does not negate the exemption.
Additionally, the court highlighted that customers maintain the freedom to choose whether to enter into a credit agreement and with which institution, further supporting the conclusion that the intermediary’s services qualify for VAT exemption. This ruling clarifies the conditions under which intermediaries in loan transactions can be exempt from VAT.