A Oy case (T-184/25)

The case concerns a common securitisation transaction. A Finnish bank (“A Oy”) grants mortgage loans to consumers, which the bank subsequently sells to a wholly owned subsidiary (“B Oy”). As a result of the sale of those loans, the rights and obligations connected thereto are transferred to B Oy. B Oy has raised capital by issuing bonds that are (largely) secured by the credits transferred to B Oy. A Oy continues to service the loans, including associated securities, and acts as representative of B Oy towards the borrowers. For its credit management services, A Oy receives a fee from B Oy.

In dispute is whether the credit management services provided by A Oy to B Oy are in scope of the VAT exemption for the management of credit by the person granting it. A Oy argued that the VAT exemption should apply, because it originally granted the loans. The Finnish authorities argued that no VAT exemption applies.

The General Court of the European Union (GCEU) rules in favour of the Finnish authorities. According to the GCEU, the management of credit for a third-party assignee by the original lender is no longer in scope of the VAT exemption. The GCEU further concludes that certain other VAT exemptions, such as for transactions concerning credit guarantees and payments, do not apply.

Hence, in the case of A Oy, the management of credit should be VAT taxed.

Practical implications

The GCEU’s ruling may have significant implications for the financial services sector. It is common practice for financial institutions, such as banks, to obtain funding by means of securitisation transactions. In the context of those transactions, they typically transfer (mortgage) loans to a special purpose securitisation vehicle whilst still managing, for a servicing fee, those loans thereafter. The management of such loans on behalf of the securitsation vehicle by the original lender was generally considered to be VAT exempt. The GCEU’s ruling indicates that this is incorrect and VAT should in principle be charged on the servicing fee. This is likely to lead to an additional cost, as securitisation vehicles are often not entitled to deduct input VAT.

Parties that continue to manage loans they have originated, and parties involved in securitisation transactions, should reassess the VAT treatment of the servicing activities.