Authors
In its judgment of 17 June 2026 (case no. T-184/25), the European General Court (EGC) ruled that in certain cases post-sale credit management is no longer exempt from VAT.
The decision is likely to be of particular significance for securitisation structures and loan servicing models, and could also have implications for the interpretation of German VAT law.
Companies should assess the implications of the decision for the VAT treatment of their loan servicing models.
Case before the EGC: sale of credit and subsequent credit management
The judgment was based on a request for a preliminary ruling from the Finnish Supreme Administrative Court. The case arose from a situation in which a financial institution had granted loans, subsequently sold them to another financial institution and transferred the associated rights and obligations. It then continued to manage the loans on behalf of the purchaser in return for consideration.
The EGC had to decide whether these management services fell within the scope of the tax exemptions set out in Article 135 (1) (b), (c) or (d) VAT Directive. These provisions concern, among other things, the granting and management of credit, dealings in security and certain transactions concerning debts.
EGC judgment: when the VAT exemption for credit management no longer applies
The EGC ruled that the VAT exemption did not apply in any of the cases examined. In the Court's view, the exemptions apply only to services provided within the original relationship between the lender and the borrower. If the credit is sold, this marks a legal turning point. The subsequent management of the credit on behalf of the purchaser is then no longer part of the original credit relationship.
The doctrinal basis for the decision is the interpretation of the term "lender". While the German version of the VAT Directive allows for both a historical and a contextual understanding of the term, the EGC has clearly opted for a contextual interpretation. Consequently, the lender is the party holding the relevant position at the time the service is provided, and not necessarily the institution that originally granted the credit.
With this interpretation, the EGC ultimately follows the Opinion of Advocate General Brkan and at the same time provides clarity regarding cross-border financing and securitisation structures.
Impact of the EGC's judgment on German VAT law
The decision could also be of considerable significance for the interpretation of section 4 (8) (a) German Value Added Tax Act (UStG).
Although the provision currently refers only to the granting and negotiation of credit, German VAT law historically contained an explicit tax exemption for credit management until the end of 1995. Following its removal as part of the harmonisation of European VAT legislation, the prevailing view was that credit management should continue to be regarded as a dependent ancillary service to the tax-exempt granting of credit.
In particular, where credit management was carried out by the lender itself, a tax exemption was often assumed. This led some to conclude that, even following the sale of credit, the original lender should continue to be regarded as the "lender" for VAT purposes. On this basis, it was argued that loan servicing activities should remain tax-exempt following the sale of credit.
The German tax authorities have not yet issued an explicit position on this matter. However, the administrative principles applied to date have suggested a comparatively broad interpretation of the tax exemption and the inclusion of certain ancillary services.
Securitisation and loan servicing: the consequences of the judgment
The judgment is likely to have practical relevance, particularly for securitisation transactions.
In such structures, credit receivables are typically transferred to special purpose vehicles (SPVs). Often, the bank that originally granted the credit continues to manage the receivables on an operational basis and receives servicing fees in return.
If the EGC's line of reasoning is followed, these services are likely to be excluded from the VAT exemption in future. The consequence would be that the servicing fees would become subject to VAT. As SPVs are often only entitled to a limited input tax relief, or none at all, VAT could become a significant cost factor within the structure.
Recommendations for banks and financial service providers
Although it remains to be seen how the German tax authorities will react to the decision, the judgment sends a clear signal regarding the interpretation of Article 135 (1) VAT Directive. The EGC is clearly moving away from a historical understanding of the term "lender" and is focusing instead on the current legal status of the parties involved.
Companies with credit sale, securitisation or loan servicing structures should therefore critically review their VAT treatment. In particular, a detailed analysis of the individual services is recommended in order to determine which services may continue to be exempt from tax and which will be subject to VAT in future.
Conclusion: The EGC significantly restricts the VAT exemption for credit management
- The EGC makes it clear that the VAT exemption for credit management services effectively ceases to apply once the loan has been sold to a new owner.
- Banks, securitisation platforms and other companies with loan servicing structures are affected in particular.
- Existing models should be reviewed with regard to their VAT treatment.
- It remains to be seen whether and to what extent the German tax authorities will adopt this case law. The judgment is likely to have a lasting impact on credit management practices and the debate surrounding the VAT exemption for financial services.
