CJEU rules Austrian VAT exemption for services between banking, insurance and pension fund undertakings may constitute state aid

On 9 July 2026, the Court of Justice of the European Union (CJEU) delivered a preliminary ruling in Case C-360/25, X v Finanzamt für Großbetriebe, interpreting Article 107(1) TFEU, the general prohibition on state aid found in the treaty on the functioning of the EU. After a referral from an Austrian court, the CJEU found that a VAT exemption granted by a EU member state for services (not otherwise exempt) rendered between undertakings that primarily carry out banking, insurance or pension fund transactions constitutes state aid within the meaning of that provision. 

Background

The dispute concerned VAT assessments for periods 2013 to 2017 under a national provision exempting certain services from VAT supplied between banking, insurance or pension fund undertakings where the services are used directly for exempt transactions. The referring court doubted the lawfulness of this exemption under EU law, noting that the exemption lacks any basis in Directive 2006/112/EC (i.e. VAT Directive) and that it was repealed by Austria with effect from 1 January 2025. 

The CJEU's reasoning rests on the four criteria of state aid:

• State origin / resources: an exemption is attributable to the state since it does not merely transpose a clear and precise obligation under the VAT Directive but reflects the EU member state's discretion, and results in forgone VAT revenue. 
• Selective advantage: it confers a selective advantage by departing from the general, harmonised VAT system, a differentiation the court found unjustified by the nature or scheme of that system. 
• Distortion of competition: using the general VAT system as the reference framework, the exemption derogates from it by favouring a specific category of undertakings, and the justifications that Austria raised (e.g. fiscal neutrality, avoiding overlapping taxes, administrative simplification) do not justify the differentiation. 
• Effect on trade between EU member states: a VAT exemption could distort competition and affect trade between EU member states since beneficiary undertakings and their customers operate in a liberalised, cross-border sector.

Temporal effects: Austria's request to limit the temporal effects of the judgment to future events was rejected. The CJEU found that Austria had not demonstrated a genuine risk of serious economic repercussions (i.e. it had provided no supporting figures) and noted that definitively closed tax periods need not be reopened. 

The judgment's interpretation applies retroactively, subject to national limitation periods and the finality of closed tax assessments. 

The case now returns to Austria’s Bundesfinanzgericht, which must apply the CJEU's interpretation to render a final judgment on the underlying VAT assessments and on costs. 

The ruling is not limited to Austria. It serves as guidelines to lawmakers and national courts and authorities across all EU member states whenever a comparable sector-specific VAT exemption is assessed under the state aid rules.

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