ECJ State Aid C-360/25 (X) – Judgment – National VAT Exemption Without Directive Basis Constitutes Unlawful State Aid

On July 9, 2026, the ECJ released the Request for a preliminary ruling in the case C-360/25 (X).

Context: Reference for a preliminary ruling – State aid – Article 107(1) TFEU – Value added tax – Exemption in respect of services provided between undertakings primarily carrying out transactions in the banking, insurance or pension fund sector – Admissibility of the request for a preliminary ruling – Concept of ‘aid’ – Advantage – Selectivity – Request to limit the temporal effects of the judgment

Article in the EU VAT Directive

Article 135(1)(d) of the VAT Directive 2066/112/EC.

1. Member States shall exempt the following transactions:
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

Summary

Issue (factual/legal background): An Austrian bank (X), parent of a VAT group, applied the exemption in the second sentence of Paragraph 6(1)(28) UStG, which exempted services provided between undertakings primarily active in the banking, insurance or pension fund sector. In practice, the Austrian tax authorities exempted all non-otherwise-exempt services between such undertakings (IT, consultancy, even restaurant/childcare), even though this exemption has no basis in the VAT Directive and was repealed as of 1 January 2025. The referring court, ruling with unlimited jurisdiction, examined the exemption’s legality of its own motion.
Question referred: Does the VAT exemption for services provided between undertakings primarily carrying out banking, insurance or pension-fund transactions—where those services are directly used for exempt transactions—constitute State aid within the meaning of Article 107(1) TFEU?
Decision: The Court (First Chamber) ruled that Article 107(1) TFEU must be interpreted as meaning that such an exemption of otherwise non-exempt services DOES constitute State aid. The request was held admissible, and the Court refused to limit the temporal effects of the judgment.
Argumentation on the four State-aid conditions: (1) State origin/resources — the exemption is imputable to Austria (not the EU, since it doesn’t reproduce a clear Directive obligation under Art. 135) and reduces potential tax revenue, as confirmed by the Austrian legislature’s own repeal rationale; the lost input-VAT deduction for X is irrelevant since the test is assessed at State-budget level. (2) Selective advantage — following Fútbol Club Barcelona (C‑362/19 P), for a periodic tax scheme it suffices that the scheme is capable of lowering tax liability; no case-by-case netting of non-deductible input VAT is required. The reference framework is the harmonised general VAT system, and the exemption derogates by favouring one category of undertakings over identically situated suppliers, with no valid justification (neutrality/simplification arguments rejected). (3) & (4) Distortion of competition and effect on trade — both are satisfied because the beneficiaries operate in a liberalised, competitive sector, and the advantage strengthens their position in intra-EU trade.
Temporal limitation refused: The Austrian Government failed to produce figures demonstrating a risk of serious economic repercussions (only vague assertions), so the cumulative criteria (good faith + serious difficulties) were not met. However, the Court clarified that definitively closed tax periods need not be reopened, subject to national procedural rules and time limits, and without prejudice to the Commission’s exclusive competence on aid compatibility.

Facts

Parties Involved: The applicant is X, an Austrian bank, which is also the controlling company of an Austrian VAT group. The defendant authority is the Finanzamt für Großbetriebe (Tax authority for large traders) in Austria.
Context of the Case: The case arises from a VAT assessment concerning the years 2013 to 2017. Following a field audit, the Finanzamt für Großbetriebe issued tax assessment notices based on an audit report that found certain cross-border services related to ATMs did not qualify for the VAT exemption under Paragraph 6(1)(8)(e) of the Umsatzsteuergesetz 1994 (UStG 1994).
VAT Exemption Dispute: X had applied the bank-to-bank exemption for exempt transactions as stipulated in the last sentence of Paragraph 6(1)(28) of the UStG 1994. This exemption allows for VAT-free services rendered between undertakings involved in banking, insurance, or pension fund transactions, provided those services are directly used to conduct exempt transactions.
Audit Findings: The tax authority assessed VAT on certain services, asserting that they did not meet the criteria for the bank-to-bank exemption. Consequently, X challenged the classification of these services as taxable within Austria.
Legal Basis of the Exemption: The Federal Finance Court must determine whether the bank-to-bank exemption, which has no clear basis in EU law, constitutes State aid under Article 107(1) TFEU. The exemption has been a subject of recent legislative amendments, indicating concerns about its compatibility with EU regulations.
Implications for Compliance: The Federal Finance Court is required to examine the legality of the application of this exemption, even if it is not disputed between the parties, to ensure alignment with EU law and the VAT Directive.

Question

State Aid Classification: Does the VAT exemption provided under the last sentence of Paragraph 6(1)(28) of the Umsatzsteuergesetz 1994 (UStG 1994) constitute State aid within the meaning of Article 107(1) TFEU?
Legal Basis for Exemption: Is the bank-to-bank exemption, which allows for VAT-exempt services between banking entities, legally valid under EU law, given that it has no explicit basis in the VAT Directive?
Impact on Trade and Competition: Does the application of the bank-to-bank exemption affect trade between Member States and potentially distort competition, as required for defining State aid under Article 107(1) TFEU?
Implications of Legislative Amendments: How do recent legislative changes regarding the VAT exemption impact its application for the years in question (2013 to 2017), and does the absence of a retroactive effect of these amendments influence the current dispute?
Scope of Review by the National Court: What is the extent of the Federal Finance Court’s obligation to scrutinize the bank-to-bank exemption, even if its applicability is not contested by the parties involved in the proceedings?

AG Opinion

None

Decision

Article 107(1) TFEU must be interpreted as meaning that an exemption from value added tax of services, which are not otherwise exempt, provided between undertakings primarily carrying out transactions relating to the banking, insurance or pension fund sector, constitutes State aid within the meaning of that provision.

Source

Curia

Reference to other ECJ Cases

Preceding order in the same matter

Schoger — Order, C‑460/24 (5 May 2025): First reference on the same Austrian banking-sector VAT exemption, declared manifestly inadmissible for insufficient factual context under Art. 94 Rules of Procedure. 🔗 On VATupdate’s ECJ index [eur-lex.europa.eu], [vatupdate.com]

Admissibility & preliminary-ruling procedure

Salzmann — C‑300/01 (15 May 2003): The referring national court defines the legislative context under its own responsibility; the Court of Justice does not verify its accuracy. No VATupdate article (non-VAT). [vatupdate.com]
Cartiera dell’Adda — C‑42/13 (6 Nov 2014): The national court alone defines the factual parameters of the dispute; the Court does not rule on that factual assessment. No VATupdate article (non-VAT).
Corsica Ferries France — C‑266/96 (18 June 1998): Even where the factual/legal context is inadequate in some respects, the Court may still rule, leaving certain aspects of the questions open. No VATupdate article (non-VAT).

National courts vs. Commission in State aid

Steinike & Weinlig — 78/76 (22 Mar 1977): National courts are empowered to interpret the concept of “aid,” even though compatibility assessment remains the Commission’s exclusive competence. No VATupdate article (non-VAT).
Lucchini — C‑119/05 (18 July 2007): The Commission’s exclusive competence concerns only compatibility with the internal market, not the classification of a measure as “aid.” No VATupdate article (non-VAT).
SFEI and Others — C‑39/94 (11 July 1996): National-court involvement flows from the direct effect of the standstill obligation covering all aid implemented without notification to the Commission. No VATupdate article (non-VAT).

The four cumulative conditions of “State aid”

Fiat Chrysler Finance Europe v Commission — C‑885/19 P & C‑898/19 P (8 Nov 2022): Sets the four-condition aid test; famously narrowed selectivity in transfer-pricing rulings, annulling the Commission’s Luxembourg decision. No dedicated VATupdate article (non-VAT State aid). [eur-lex.europa.eu], [legalblogs…kluwer.com]

State origin / imputability / State resources

Blackrock Investment Management (UK) — C‑231/19 (2 July 2020): A single supply of fund-management services (Aladdin platform) used for both SIFs and non‑SIFs cannot benefit from the Art. 135(1)(g) exemption. 🔗 VATupdate article [vatupdate.com]
ATP PensionService — C‑464/12 (13 Mar 2014): Defined-contribution occupational pension funds can qualify as “special investment funds”; related administrative/accounting services fall within the management exemption. 🔗 On VATupdate’s ECJ index [vatupdate.com]
Puffer — C‑460/07 (23 Apr 2009): A national VAT measure is imputable to the EU (not the State) only if it merely reproduces a clear, precise directive obligation. 🔗 On VATupdate’s ECJ index [eur-lex.europa.eu], [vatupdate.com]
France v Commission — C‑482/99 (16 May 2002): Establishes the “State resources” requirement — aid must be granted directly or indirectly through resources imputable to the State. No VATupdate article (non-VAT).
Paint Graphos and Others — C‑78/08 to C‑80/08 (8 Sept 2011): Tax exemptions mitigating charges normally borne by an undertaking’s budget qualify as aid, subject to selectivity and trade-effect conditions. No dedicated VATupdate article (non-VAT). [eur-lex.europa.eu], [jstor.org]
Prestige and Limousine — C‑50/21 (8 June 2023): The “State resources” condition includes situations of a sufficiently concrete economic risk of burdens being imposed on the State budget. No VATupdate article (non-VAT).

Advantage & selectivity

Libert and Others — C‑197/11 & C‑203/11 (8 May 2013): “Advantage” is construed broadly, covering any measure directly or indirectly favouring undertakings beyond normal market conditions. No VATupdate article (non-VAT).
Commission v Fútbol Club Barcelona — C‑362/19 P (4 Mar 2021): For periodic tax-aid schemes, it suffices that the scheme as a whole is capable of favouring beneficiaries; actual advantage is assessed at recovery. No VATupdate article (non-VAT).
Heiser — C‑172/03 (3 Mar 2005): A Member State unilaterally approximating competitive conditions to those of other States cannot thereby strip a measure of its “aid” character. 🔗 VAT-related State aid case; on VATupdate’s ECJ index [vatupdate.com]
Prezydent Miasta Mielca — C‑453/23 (29 Apr 2025): Sets the reference-framework/derogation selectivity test; a general, neutral property-tax exemption for railway infrastructure was found not to confer a selective advantage. No dedicated VATupdate article (property-tax State aid). [eur-lex.europa.eu], [agenparl.eu]

Distortion of competition & effect on trade

Eventech — C‑518/13 (14 Jan 2015): Only potential distortion of competition and effect on intra-EU trade need be shown, not an actual distortion. No VATupdate article (non-VAT).
Cassa di Risparmio di Firenze and Others — C‑222/04 (10 Jan 2006): An advantage granted to an undertaking operating in a competitive sector can suffice to show a real or potential effect on competition. No VATupdate article (non-VAT).
Germany v Commission — C‑156/98 (19 Sept 2000): Aid strengthening a beneficiary’s position relative to competitors in intra-Community trade means those competitors are regarded as affected. No VATupdate article (non-VAT).

Limitation of temporal effects

Latvijas Republikas Saeima (Penalty points) — C‑439/19 (22 June 2021): Temporal limitation requires two cumulative criteria: good faith of those concerned and a risk of serious difficulties. No VATupdate article (non-VAT/data-protection).
Microsoft Mobile Sales International and Others — C‑110/15 (22 Sept 2016): Conditions for temporal limitation; interpretations apply retroactively to legal relationships predating the judgment, subject to national time limits. No VATupdate article (non-VAT/copyright levy).
Erzeugerorganisation Tiefkühlgemüse — C‑516/16 (20 Dec 2017): A Member State seeking temporal limitation must produce figures before the Court demonstrating the risk of serious economic repercussions. No VATupdate article (non-VAT).
DNB Banka — C‑326/15 (21 Sept 2017): The Art. 132(1)(f) cost-sharing exemption applies only to groups whose members pursue public-interest activities — not to financial-sector groups. 🔗 Flashback article on VATupdate’s ECJ index [eur-lex.europa.eu], [vatupdate.com]

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Executive Summary

This briefing document reviews the key findings of the European Court of Justice (ECJ) judgment in Case C-360/25 [Schoger II], delivered on 9 July 2026, concerning an Austrian Value Added Tax (VAT) exemption for services provided between financial sector undertakings. The Court ruled that this specific national VAT exemption constitutes State aid within the meaning of Article 107(1) TFEU, as it deviates from EU VAT law and confers a selective advantage. The judgment has significant implications for national tax regimes and the financial sector, reinforcing the ECJ’s role in ensuring compliance with State aid rules even for tax measures. Additionally, a promotional note for “VATupdate.com” highlights the ongoing need for timely and expert analysis of such complex EU VAT rulings.

Key Source 1: ECJ Judgment C-360/25 [Schoger II] – “Financial Sector VAT Exemption: State Aid Determination”

Case Overview

Parties: X (an Austrian bank and parent company of a VAT group) vs. Finanzamt für Großbetriebe (Austrian Tax Authority). The Austrian Government and European Commission also submitted observations.
Referring Court: Bundesfinanzgericht (Federal Finance Court, Austria).
Origin of Dispute: X applied a specific VAT exemption under Austrian law (Paragraph 6(1)(28) of the UStG) for certain services. The tax authority disputed this application for services related to ATMs, leading to amended VAT assessments for 2013-2017. The referring court, in its unlimited jurisdiction, raised doubts ex officio about the exemption’s compatibility with EU law, specifically as potential State aid.
Core Question Referred: “Does the VAT exemption relating to other services provided between undertakings which primarily carry out transactions relating to the banking, insurance or pension fund sector, provided that those services are used directly to carry out those exempt transactions, and for the provision of the staff of those undertakings to the groupings referred to in the first sentence [of Paragraph 6(1)(28) of the UStG, constitute a State aid within the meaning of Article 107(1) TFEU?]” (Paragraph 19).
Key Factual Context: The exemption applied broadly to “undertakings primarily carrying out transactions relating to the banking, insurance, or pension fund sector,” including those without a banking licence. In practice, the Austrian tax authorities exempted “all the services provided between the undertakings concerned which were not already exempt under another provision of the UStG,” covering services like IT, consultancy, restaurant, or childcare (Paragraph 35). This exemption was subsequently repealed by Austria with effect from 1 January 2025.

Admissibility of the Request

The request for a preliminary ruling was deemed admissible, despite initial challenges from X and the Austrian Government. The ECJ confirmed that national courts are empowered to interpret the concept of ‘State aid’ and refer such matters to the Court, distinct from the Commission’s role in assessing compatibility.

Court’s Ruling: The Exemption Constitutes State Aid

The ECJ ruled that the Austrian VAT exemption in question does constitute State aid under Article 107(1) TFEU. The Court systematically assessed the four cumulative conditions for State aid:

Intervention by the State or Through State Resources:
- State Imputability: The exemption is “imputable to the Austrian State” because it “does not fall within any of the exemptions exhaustively provided for by the VAT Directive” (Paragraph 38). An exemption is only EU-imputable if it reproduces a “clear and precise obligation laid down in a directive,” which is not the case here (Paragraph 39).
- State Resources: A tax exemption constitutes a foregone revenue for the State, which is equivalent to a positive expenditure. The Court clarified that the existence of State resources is assessed “primarily at the level of the State concerned and its budget” and focuses on the “potential to reduce that revenue” (Paragraph 43). The Austrian legislature’s own acknowledgment of “additional VAT revenue” post-repeal supports this (Paragraph 44). The argument that the taxpayer bears a higher tax burden due to the inability to deduct input VAT does not negate the State resource element at the State level.
Selective Advantage:
- Advantage: The exemption provides a “more favourable financial position” for beneficiaries (Paragraph 40). It confers an advantage on “undertakings providing the services covered by that exemption” compared to undertakings that must charge VAT for similar services (Paragraph 47). The Court noted that, for an aid scheme, it’s not necessary to ascertain if the advantage is precisely offset by the inability to deduct input VAT in each specific case, as this depends on “random and variable circumstances” (Paragraph 48).
- Selectivity: The exemption is selective because it derogates from the “general system of charging VAT,” which is the harmonised EU reference framework (Paragraph 52). It specifically exempts services between financial sector undertakings, while “those services are subject to VAT when they are supplied by undertakings not falling within that category” (Paragraph 53). The beneficiaries are not in a different factual or legal situation from other service providers. The justifications put forward by the Austrian Government (fiscal neutrality, preventing overlapping taxes, administrative simplification) were rejected as “not appear[ing] capable of justifying the differentiation at issue,” as these relate to the general system of VAT collection, not to the creation of exemptions outside the exhaustive list in the VAT Directive (Paragraphs 55-56).
Distortion of Competition:
- The exemption is “liable to distort competition” due to the “advantage enjoyed by the exempt undertakings” in a “liberalised sector” (Paragraph 58). An advantage in a competitive sector is sufficient to establish a real or potential effect on competition.
Affects Trade Between Member States:
- The advantage granted “strengthens the position of an undertaking compared with other undertakings competing in intra-Community trade,” thus affecting trade (Paragraph 59). This applies even if beneficiaries are established in other Member States, as it disadvantages other non-exempt service providers, whether Austrian or from other Member States (Paragraph 60).

Request for Limitation of Temporal Effects

The Austrian Government requested to limit the judgment’s temporal effects, citing “significant consequences” for the Austrian banking and insurance sector, the need to revalue transactions, potential for numerous national court cases, and good faith. The ECJ rejected this request. It reiterated that limitation is exceptional, requiring “serious economic repercussions” and good faith. The Austrian Government failed to “produce… figures showing the risk of such repercussions” (Paragraph 66). The Court also noted that “tax periods which have been definitively closed should not be reopened in national court proceedings” (Paragraph 67), but did not limit the judgment for periods that are still open for challenge.

Relevance to ECJ Judgment

The existence of a platform like VATupdate.com directly underscores the complexity and dynamic nature of EU VAT law and its intersection with other EU legal frameworks, such as State aid. The detailed and specific nature of the ECJ judgment in C-360/25 [Schoger II] demonstrates the critical need for professionals to stay informed about such rulings to ensure compliance and make “informed decisions based on EU VAT case law.” This judgment, with its intricate analysis of State aid principles applied to a national VAT exemption, is precisely the kind of “latest ECJ… VAT ruling” that such a platform would feature and analyze for its target audience.

Main Themes and Most Important Ideas/Facts

National Tax Exemptions and EU State Aid Rules: The primary theme is the ECJ’s rigorous application of EU State aid rules (Article 107(1) TFEU) to national tax measures, specifically VAT exemptions. This judgment confirms that national tax provisions, even seemingly minor exemptions, can be deemed illegal State aid if they do not conform to EU law principles.
Strict Interpretation of VAT Directive Exemptions: The Court reaffirms that exemptions from VAT are to be interpreted strictly and that the VAT Directive provides an exhaustive list of permissible exemptions. National derogations not explicitly found in the Directive are highly susceptible to challenge.
Broad Definition of State Resources and Advantage: The judgment clarifies that “State resources” include foregone tax revenue, and an “advantage” is assessed broadly. For an aid scheme, it’s not necessary to prove the exact net benefit at the classification stage, particularly when the calculation of disbenefits (like denied input VAT deduction) depends on “random and variable circumstances.”
Selectivity as a Key Criterion: The Court’s analysis of selectivity is crucial. It identifies the “general system of charging VAT” as the reference framework and demonstrates that the Austrian exemption was a clear derogation favouring specific undertakings without objective justification linked to the nature or general scheme of the VAT system itself.
National Courts’ Role in State Aid Enforcement: The judgment emphasizes the active role of national courts in assessing the existence of State aid, including the ability to refer questions to the ECJ, reinforcing the decentralised enforcement mechanism of EU State aid law.
Limited Scope for Temporal Effects: The ECJ maintains a strict stance on limiting the temporal effects of its judgments. Member States must provide concrete evidence of “serious economic repercussions,” not just general assertions, for such a request to be granted. This means that, for non-definitively closed tax periods, the ruling applies retrospectively.
Implications for Financial Services: The ruling specifically targets the financial, insurance, and pension fund sectors, indicating that national support measures (even indirect ones like tax exemptions) for these sectors will be scrutinized under State aid rules if they fall outside the harmonised VAT framework.
Importance of Information and Compliance: The inclusion of the VATupdate.com note highlights the ongoing need for clarity and expertise in navigating complex EU tax and State aid landscapes, particularly for industries heavily affected by such rulings.