Comments on T-184/25 (A) – Management of Securitised Mortgages is Taxable

EGC T-184/25 (Veronsaajien oikeudenvalvontayksikkö) – Judgment – Original lender’s outsourced credit management to assignee is not VAT exempt – VATupdate

Credit transfers and VAT: General Court confirms strict interpretation of the exemption for credit management

Issue: The General Court addressed whether a bank that sells loans but continues to manage them for the new owner can still claim VAT exemption for these management services under the “management of credit by the person granting it” provision of the VAT Directive.
Decision: The Court ruled that these services are not VAT exempt. The exemption is tied to the current credit relationship, meaning once the loans are sold, the original bank is no longer managing its own loans but providing a taxable service to the transferee.
Impact: This decision, based on strict interpretation and fiscal neutrality, significantly impacts refinancing structures where originating banks often continue loan servicing. It suggests that such services will now be subject to VAT, potentially increasing costs for financial institutions and challenging existing national VAT treatments, such as in Belgium.

Source VAT-consult

Click on the logo to visit the website

VAT exemptions for financial services do not apply to the management of credits after sales credits

The General Court ruled that the VAT exemption for credit management does not apply to A Oy, a company that sold its housing loans to a subsidiary (B Oy) but continued to manage them for a fee.
The Court clarified that the VAT exemption for credit management (Article 135(1)(b) of the VAT Directive) is not applicable when the managing entity is no longer the lender.
Additionally, the exemptions for surety bonds and other security/guarantee obligations (Article 135(1)(c)) and transactions concerning claims (Article 135(1)(d)) were also deemed not to apply in this specific case.

Source Taxlive

The EU General Court ruled that the VAT exemption for credit management does not apply when the original lender sells the loans but continues to manage them for the new creditor for a fee.
The Court clarified that this type of credit management is considered a separate, taxable service provided to the assignee, not part of the original credit relationship.
The exemptions for providing guarantees and transactions concerning claims were also deemed inapplicable in this scenario, as managing credits that serve as collateral is not equivalent to providing a guarantee, and the management services do not involve a transfer of funds or essential financial operation functions.

Source Fernando Matesanz

Click on the logo to visit the website

The VAT exemption for the management of credit is limited to the lender only. However, does that exemption stick with the original lender or, where a loan is assigned, follows along to the new lender? In a very cogent and well-argued judgment, the General Court convincingly held that it is the latter.

Source Fabian Barth

EU General Court rules that loan and securitization servicing is subject to VAT

The General Court of the European Union (EGC) ruled that loan servicing arrangements, specifically when a provider continues to service a loan it has sold, are subject to VAT and do not qualify for the credit management exemption.
This ruling could lead to significant irrecoverable VAT costs for securitization companies and other special-purpose vehicles (SPVs) that acquire loans, necessitating a review of existing arrangements.
The judgment’s impact on UK-only arrangements is uncertain due to Brexit, but businesses in both the EU and UK should monitor how tax authorities respond and assess potential implications for their current operations.

Source EY