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Financial services provided under a sub-participation agreement are exempt from VAT

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Court of Justice of the European Union, Press Release n. 165/22 of 6 October 2022
Urteil des Gerichtshofs in der Rechtssache C-250/21 | O. Closed-end investment fund represented by O.

According to the Court, the granting of a loan to the transferor in the context of a sub-holding agreement falls within the concept of granting credit within the meaning of the VAT Directive.

O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O (hereinafter: O investment fund) planned to enter into sub-holding agreements with banks or investment funds and submitted an application to the Polish Minister of Finance for a tax ruling to clarify whether the services that he had to provide as a sub-participant could be exempt from VAT.

Under the contract in question, the sub-participant and the transferor mutually undertake: the sub-participant to provide loans to the transferor and the transferor to transfer to the sub-participant the proceeds of the receivables specified in this contract, without prejudice to debt instruments as part of its assets. The assignor receives a service for a consideration equal to the difference between the estimated value of the proceeds from the claims and the amount of the loan disbursed by the sub-participant.

O-Investmentfonds, not sharing the opinion of the Minister of Finance, according to which the sub-participant’s sales should be subject to the general VAT rate of 23%, filed an appeal against the aforementioned ruling. In the context of this dispute, the Naczelny Sąd Administracyjny (Supreme Administrative Court, Poland) wishes to know whether Article 135 (1) (b) of the VAT Directive1 must be interpreted as meaning that the exemption provided for by that provision for transactions relating to the granting and intermediation of credit and the management of credit applies to the sub-holding agreement described in the main proceedings.

With today’s judgment, the Court of Justice has answered this question in the affirmative.

First, the Court confirms this services provided by a sub-participant fall within the scope of the VAT Directive, because they are provided for a fee. In this regard, the Court emphasizes that this condition is met if there is a legal relationship between the provider and the recipient of the service, in the context of which reciprocal services are exchanged, the remuneration received by the provider representative of the actual consideration for the service provided to the recipient . The form of remuneration paid to the sub-participant is irrelevant to the question of whether his service is paid or not.

Second, the Court examines whether the subcontractor’s supplies fall within the concept of ‘credit’ within the meaning of Article 135 (1) (b) of the VAT Directive, which is the only exemption applicable to the main proceedings.

Referring to its previous jurisprudence, according to which the “granting of credit” consists, among other things, in the provision of capital against payment, so that the capital does not necessarily have to be provided by a bank or a financial institution and the payment takes place do not necessarily have to be paid in the form of interest, the court confirms, that the service provided by the sub-participant to the originator under the contract stipulated between them constitutes a single service, essentially the payment of a capital for consideration.

Further the court notes that the sub-participant bears the credit risk inherent in any credit transaction. It is irrelevant whether this risk arises from the default of the debtor of the claims from which the income is transferred to him or from the insolvency of his direct contractual partner. Furthermore, the Court considers, inter alia, that neither the lack of guarantees in favor of the sub-participant nor the fact that, in the event of default by the debtors of the claims whose proceeds are transferred to the sub-participant, the sub-participant does not can directly notify the assignor in recourse, nor does the fact that the debt securities remain in the assets of the assignor affect the nature of a sub-participation transaction and, consequently, the classification of the contract in question as a loan.


1 Council Directive 2006/112 / EC of 28 November 2006 on the common system of VAT (OJ 2006 L 347, p. 1, hereafter: VAT Directive).

A NOTIFICATION: By way of a reference for a preliminary ruling, the courts of the Member States may, in a case pending before them, refer to the Court questions on the interpretation of EU law or on the validity of an EU act. The Court of Justice does not rule on the national dispute. It is for the national court to rule on the case in accordance with the decision of the Court. This decision by the Court of Justice is equally binding on other national courts dealing with a similar problem.

Unofficial document for media use, not binding on the Court of Justice.

of the full text of the sentence will be published on the Curia website on the day of delivery.

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