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

In refinancing structures, loan portfolios are often transferred while the day-to-day administration remains with the originating bank. For the borrower, little changes in practice, but from a VAT perspective attention shifts to the servicing fee received by the bank after the transfer.

Does that remuneration still fall within the exemption for the “management of credit by the person granting it” under Article 135(1)(b) of the VAT Directive? The General Court answers that question in the negative. The exemption is not linked to the historical role of the party that originally granted the credit, but to the current credit relationship. A party that, following the transfer, is no longer the lender in respect of the managed loan portfolio does not carry out exempt credit management but, in principle, supplies a taxable service to the transferee of the loans.

Legal framework

The discussion takes place within the framework of Article 135(1) of the VAT Directive, which contains exemptions for financial services. Three provisions are particularly relevant in this case:

The discussion mainly concerns the scope of the words “by the person granting it” in Article 135(1)(b) of the VAT Directive.

Facts

The case concerned a Finnish bank that granted mortgage loans and subsequently transferred those loans at market value to a group company. The transferee did not itself grant mortgage loans but acquired the loans from the bank.

Following the transfer, all servicing activities remained with the originating bank. It continued to provide customer services, monitor the loans, calculate interest and fees, implement amendments to the loans and, where necessary, carry out debt collection activities. The remuneration for those servicing activities was calculated on the basis of actual costs plus an agreed profit margin. In addition, part of the transferred loans served as collateral for bonds issued by the transferee.

Preliminary questions

The referring court essentially sought clarification as to whether “the person granting the credit” should be understood as the original lender that granted the loan at the outset or as the party that remains part of the credit relationship at the time the management services are performed.

In addition, the question arose whether the management services could nevertheless fall within another exemption, in particular under the provisions relating to guarantees and other securities or under the provisions concerning claims and payments.

Judgment of the General Court

The General Court observed that the wording of Article 135(1)(b) does not provide a fully unambiguous answer. Certain language versions refer to the past, whereas others point more towards a current status. The Court therefore examined the context and purpose of the exemption.

To begin with, the Court recalls that VAT exemptions must be interpreted strictly. In this regard, it examines, inter alia, the different language versions of the condition “by the person granting it” in Article 135(1)(b). It notes that some versions (including the Dutch and French versions) use a verb in the past tense, whereas others (including the English version) use a present participle or the present tense to describe the granting of credit.

According to the Court, the exemption is intended to ensure that all services supplied within the framework of a credit relationship are exempt from VAT. However, the strict interpretation of the exemption laid down in Article 135(1)(b) of the VAT Directive precludes extending that exemption to any situation in which that relationship has ceased to exist.

The exemption for the management of credit therefore applies only to management activities carried out within the original credit relationship between the lender and the borrower. Where the lender transfers the credits to a third party, that relationship is broken. Any management services subsequently provided on behalf of the transferee constitute a separate supply of services to that transferee and do not fall within the scope of Article 135(1)(b) of the VAT Directive.

The exemption is therefore not designed as a general exemption for loan servicing. Rather, it is linked to management carried out within the credit relationship between lender and borrower.

The General Court also emphasises the principle of fiscal neutrality. The VAT treatment of the same management service should not differ depending on whether it is supplied by the original lender or by another third-party service provider. In the latter case, the service is taxable. The same treatment must therefore apply where the original lender acts as servicer following the transfer.

The Court also tested that interpretation against the objectives underlying the financial services exemptions. Those exemptions seek, among other things, to avoid practical difficulties in determining the taxable amount and the right to deduct VAT, and to prevent consumer credit from becoming more expensive. According to the Court, those considerations do not arise in the same way in the present case. The servicing activities are separately invoiced to the transferee on the basis of actual costs and a profit margin. There is therefore no comparable difficulty in determining the taxable amount. Moreover, the services are not invoiced directly to the borrower. A possible indirect impact on financing costs is not sufficient to justify extending the exemption.

The alternative exemptions were also rejected. Article 135(1)(c) does not assist, even though the loans serve as collateral for bonds. The management of credit is specifically governed by Article 135(1)(b). That limitation cannot be circumvented by characterising the management activities as transactions concerning securities or guarantees.

Nor does Article 135(1)(d) apply. Servicing activities relating to transferred loans do not, in themselves, result in the transfer of funds and do not fulfil the specific and essential functions of a payment or transfer. They therefore do not constitute exempt transactions concerning claims or payments.

Commentary

This judgment confirms the strict interpretation of the financial services exemptions. The approach advocated by the Advocate General is largely followed: once the loans have been sold, servicing becomes a separate taxable supply for VAT purposes.

From a legal perspective, that outcome is unsurprising. Article 135(1)(b) links the exemption for credit management to the person granting the credit. According to the General Court, this does not refer to a permanent historical label but rather to management carried out within the credit relationship for which the exemption was intended. Once the loans are transferred, the originating bank is no longer managing its own loans within that relationship but is instead supplying a service to the transferee.

The impact may be significant. In many refinancing structures, the servicing of transferred loans remains with the originating lender in practice. This is commercially logical because that party already manages the customer relationship, systems and credit documentation. According to the General Court, however, this is not sufficient from a VAT perspective to preserve the exemption.

Closer to home, the judgment also places pressure on the Belgian approach. In Belgium, it is accepted that the original lender may continue to apply the exemption under Article 44, § 3, 5° of the Belgian VAT Code to management services supplied to the transferee after the transfer, whereas comparable management services supplied by an independent third party are, in principle, subject to VAT, as set out in Circular 2018/C/49 of 24 April 2018.

That approach is more difficult to maintain in light of this judgment. The General Court specifically points to the problem that the same management service is treated differently depending on whether it is supplied by the original lender or by another service provider. Such a distinction conflicts with the principle of fiscal neutrality.

The practical consequences are particularly relevant for the financial sector. In structures where the transferee has a limited or no right to deduct VAT, VAT charged on servicing fees becomes a real cost. This may directly affect the profitability of securitisation, covered bond and other refinancing structures.

The judgment once again illustrates the growing pressure on the VAT treatment of financial services. The market operates through transfers, servicing platforms and capital market structures, while the VAT Directive continues to rely on exemption concepts developed in a very different era. Unless the legislator intervenes, the courts will continue to define the boundaries. In this case, they have done so in a particularly strict manner.

Source: General Court, 17 June 2026, Case T-184/25, Veronsaajien oikeudenvalvontayksikkö v A Oy.