No VAT Exemption for Post-Transfer Loan Management Services 

In its judgement of 17 June 2026 (Case T-184/25), the General Court of the EU (“GC”) ruled that there is no VAT exemption for loan management services carried out by the original lender after the latter has transferred the loans to another party.

This GC judgement is diametrically opposed to the current position of the Belgian VAT authorities.

Needless to say that this judgement is particularly relevant for financial institutions using securitisation techniques. 

Facts and dispute

The facts are as follows. A bank (A) granted property loans to borrowers and then sold those loans to its wholly owned subsidiary (B) — which issued covered bonds backed by those loans as collateral.

Although legal ownership transferred to B, A remained servicer of record: calculating rates and interest, handling amendments, dealing directly with borrowers, monitoring the associated guarantees, and pursuing debt collection where necessary. A invoiced B for those management services at actual cost plus an agreed profit margin.

GC’s judgement and reasoning

The GC ruled that the services provided by A to B could not benefit from the VAT exemption for the “management of credit” and that no other VAT exemption applied.

The VAT exemption for the “management of credit” is laid down in Article 135(1)(b) of the VAT Directive.

The English version of this Article states that the Member States shall exempt the following transactions: 

“the granting [of credit] and […] the management of credit by the person granting it”.

Hence, the question arose whether the VAT exemption would still apply to loan management services by the original lender after it has transferred the loans.

A linguistic test was inconclusive as the wording of the exemption is not the same between different language versions (past vs. present tense).

The GC then ruled based on the context and objective of this VAT exemption (which should be interpreted strictly) that only services within the borrower-lender relationship should be exempt. Hence, loan management services by the original lender to the transferee of the loans are treated as any other type of outsourced loan management to a third party (i.e. subject to VAT).

Conflict with the current position of the Belgian VAT authorities

The Official Belgian VAT Commentary currently states that where a credit portfolio is transferred and its management is entrusted to the original lender, the VAT exemption of Article 44, §3, 5° VAT Code (cf. Article 135(1)(b) of the VAT Directive) applies to the management services provided by the original lender to the transferee.

Hence, one may soon expect a change of this position to align with the judgement of the GC.

Key takeaways

As loan management services post-transfer should as of now be subject to VAT, and such VAT will generally be non-recoverable by the transferee, this will increase the cost of such structures where the legal ownership of the loans (including all rights and obligations) is transferred by the original lender.

Mitigation strategies that could be considered may include the following (subject to detailed analysis):

• VAT grouping between the original lender and the transferee;
• Loan management by the transferee;
• Synthetic risk transfer rather than a full legal assignment of the loan (one could indeed argue that this is not covered by the GC’s judgement);
• The transferee is a fund/securitisation vehicle (see, however, ruling n° 2026.0182).

The question is whether credit management could be exempt where the recipient of the services is a fund that can benefit from VAT exempt management services pursuant to Article 135(1)(g) of the VAT Directive / Article 44, §3, 11° VAT Code. This issue has not been considered by the GC.

We would be pleased to help you reach a VAT-optimal structure. Please do not hesitate to contact us with any questions.