VAT treatment of credit management services following loan portfolio sales: EGC ruling

On 17 June 2026, the European General Court (EGC) ruled in Case T-184/25 (Veronsaajien oikeudenvalvontayksikkö) that credit management services provided by a bank to a purchaser of its loan portfolio do not qualify for VAT exemption under the EU VAT Directive. The ruling has material implications for financial institutions engaged in loan portfolio transactions and securitisation structures.

Background

A Finnish bank (A Oy) sold mortgage loans to its wholly-owned subsidiary (B Oy). Following the transfer, the bank continued to manage the loans for the subsidiary, including customer service, invoicing, collection and loan renewals, in exchange for a cost-plus fee. B Oy was not part of A Oy’s VAT group.

The question before the EGC was whether these management services qualified for VAT exemption under Article 135(1)(b) of the VAT Directive, which exempts “the management of credit by the person granting it”. The Finnish tax authorities argued that once loans are sold, the original lender no longer qualifies as “the person granting” credit.

EGC ruling

The EGC examined three potential VAT exemptions and rejected each, basing its reasoning on the nature of the legal relationship rather than the identity of the service provider.

Article 135(1)(b) – Management of credit by the grantor

The EGC held that this exemption applies only within the original lender-borrower relationship. Once loans are transferred to a third party, management services fall outside this protected relationship, even if performed by the original lender. The Court acknowledged that different language versions of the VAT Directive phrase this exemption differently, but concluded that the exemption remains tied to the original grantor-borrower relationship. The determining factor is not who performs the service, but for whom and in what context.

Article 135(1)(c) – Guarantees and securities

The EGC ruled that managing credits is fundamentally different from assuming or guaranteeing them. Managing loans that serve as collateral for bonds does not constitute “assuming guarantees” within the meaning of this provision.

Article 135(1)(d) – Transactions concerning receivables

The exemption for “transactions concerning receivables” does not apply. Credit management services do not involve transferring ownership of funds or performing the essential functions of such transfers. The EGC noted that “debt collection” is explicitly excluded from this exemption, indicating the legislator’s intent that administrative services related to debts should generally be taxable.

Advocate General’s opinion

The EGC’s ruling closely followed an earlier opinion of Advocate General Brkan. Her opinion, which marked a departure from what many observers had anticipated, provided the framework the EGC ultimately adopted.

AG Brkan’s central point was that the VAT exemption for credit management is intrinsically linked to the original lender-borrower relationship. Upon transfer of a loan, that link is severed. Any services subsequently provided to the purchaser constitute a new, separate supply, and that supply is taxable.

She emphasised that it is immaterial that the original bank continues to perform the same activities it did before the transfer. The decisive factor is the legal relationship. Once services are provided to a third-party purchaser for a fee, the exemption no longer applies.

The AG similarly rejected the application of Article 135(1)(c) and Article 135(1)(d), finding that credit management services do not constitute “assumption” of guarantees or “transactions concerning” debts within the meaning of these provisions.
The EGC adopted AG Brkan’s reasoning in full.

Key reasoning

Four principles underpin the EGC’s analysis:

• Strict interpretation: VAT exemptions are exceptions to the general rule that services are taxable. Courts interpret them narrowly.
• Relational context: The exemption links loan management to granting credit, pointing to the original lender-borrower relationship rather than services provided to subsequent purchasers.
• Fiscal neutrality: Allowing original lenders to provide VAT-exempt management services to loan purchasers would confer an unfair advantage over other service providers.
• Identifiable consideration: Financial services are often VAT-exempt because the taxable amount is difficult to determine. That rationale does not apply where management services are separately invoiced at a defined fee.

Practical implications

The ruling affects several common structures:

• Loan portfolio transactions: Banks selling loan portfolios should factor in that ongoing servicing arrangements will attract VAT, affecting pricing and deal structuring.
• Securitisation structures: SPVs that acquire loans as part of securitisation or covered bond transactions should expect that credit management services provided by the originator will be subject to VAT. Where the SPV’s activities are exempt, input VAT on these services will be irrecoverable.
• VAT grouping: The ruling highlights the potential benefits of VAT grouping, as intra-group services typically fall outside the scope of VAT. In this case, B Oy was not part of A Oy’s VAT group.
• Covered bond programmes: Originators that transfer loans to a cover pool and continue to service those loans should reassess the VAT treatment of their servicing fees.
• Structuring alternatives: Market participants may need to consider alternative structures to mitigate the VAT impact. Options include incorporating the SPV within a VAT group with the originator (where permitted under local law), restructuring servicing arrangements to minimise irrecoverable VAT costs, or establishing the SPV in a jurisdiction outside the scope of the EU VAT rules, although the latter requires careful analysis of the place of supply rules and may give rise to other tax or regulatory considerations.
• Existing arrangements: Parties to loan securitisation structures should review their current arrangements for potential VAT exposure.

Conclusion

The EGC’s ruling confirms that once loans are transferred, the original lender’s management services become taxable under the EU VAT Directive. This narrows an exemption on which many financial institutions had relied. Banks and other financial institutions engaged in loan sales, securitisations or covered bond programmes should review their existing arrangements and assess whether alternative structures, including VAT grouping or the use of non-EU SPVs, could mitigate the VAT cost.

For more information on the EGC’s ruling and EU tax implications for transferred loans, contact your CMS client partner or the CMS experts who contributed to this article.