ECJ narrows scope of tax exemption
The Court of Justice of the European Union has clearly narrowed the scope of the tax exemption for the servicing of credit claims following a transfer of claims. If an originator continues to service transferred loans in return for remuneration, the exemption under Article 135(1)(b) to (d) of the European VAT Directive does not apply. Although the ruling concerns a case from Finland – EU directives are transposed into national law – it also raises questions regarding securitisations involving German and Luxembourg special-purpose vehicles.
Need for action, costs and risks for market participants
The judgement gives rise to considerable legal uncertainty, as it calls into question existing market practice regarding the application of the VAT Directive to ‘true sale’ securitisations. Initially, this will entail an audit burden for originators, and subsequently possibly an even greater adjustment burden, potentially leading to a material increase in the tax burden on securitisations. This clearly contradicts the long-standing principle of tax neutrality for securitisations compared with other forms of financing, and even more so the stated objective of the European legislator to promote securitisations as a means of financing European competitiveness.
Initially, work will be required to review existing transactions: contracts involving ongoing credit servicing following an assignment of receivables must be assessed to determine whether a tax exemption for the servicing was applied. Agreed prices may need to be reviewed for market conformity, and contractual arrangements may need to be adjusted.
Consequences for the securitisation market
The ruling affects a core aspect of many securitisations. The originator often continues to provide servicing even after the sale of the receivables. If VAT is levied on this service in future, this will result in an additional cost burden for many special purpose vehicles (SPVs). SPVs generate exclusively VAT-exempt turnover. Input VAT deduction is therefore generally not possible. The imposition of VAT thus puts a strain on cash flow and can reduce the return on a transaction, potentially leading to actual losses for investors. The situation remains unclear for Germany and Luxembourg. Both countries have so far followed their own administrative practices. Furthermore, the structure of many securitisations differs from the case in question. Further legal review by the Court of Justice of the European Union also remains a possibility.
Outlook
Market participants are now focusing on the reaction of the national tax authorities and on a possible further review by the Court of Justice of the European Union. Until then, a careful analysis of existing structures, as well as robust contract and pricing arrangements, are becoming increasingly important. The judgment of the Court of Justice of the European Union was delivered on 17 June 2026.