Luxembourg Tax Alert 2022-10

New ECJ case-law on the notion of granting of credit

New ECJ case-law on the notion of granting of credit

On 6 October 2022, the Court of Justice of the European Union (hereafter ECJ or the Court) published a decision in the case “O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O S.A” (C-250/21).

This case concerns a preliminary ruling on the application of a VAT exemption to services provided under a sub-participation agreement.


Fund O is a non-standardised securitization fund as defined under the Polish law. The Company concluded a sub-participation agreement with banks or investment funds. It requested a ruling from the Polish Minister for Finance to ascertain the VAT treatment of the services it provides as sub-participant.

More specifically, following the sub-participation agreement, the originator (i.e., bank/investment fund) undertakes to transfer to the sub-participant (i.e., Fund O) all the proceeds from the receivables included in the agreement in exchange for a contractually agreed financial contribution. The latter is received by the bank/investment fund from the sub-participant as soon as the agreement is concluded. 

To Fund O, such services should benefit from a VAT exemption, insofar as they could be assimilated to credit agreements or as services hedging the risk of the debtors’ solvency.

The Polish Minister for Finance’s view was however different: these services could not be seen as VAT exempt, as they are not identical to credit agreements. Indeed:

  • The receivables at hand remain with the originator (so the agreement does not qualify as the granting of credit as such),
  • The agreement contains a clear specification of the source of the funds which will be used to satisfy the sub-participant’s claim,
  • In case of debtor’s insolvency, the sub-participant does not enjoy a claim on the originator for repayment of the remaining amount.

An action was brought before the administrative Court in Poland by Fund O against the tax ruling. The first instance Court decided in favor of Fund O. The Polish tax authority further introduced an appeal before the Supreme Administrative Court which decided to refer to the CJEU. The latter had to decide whether article 135 (1) (b) of Directive 2006/112/EC on the application of Value-added tax (VAT Directive) could apply to the services rendered by Fund O under this type of agreement. 


The Court said that it is first necessary to determine whether the categories of services rendered by Fund O under the sub-participation agreement qualify as services against remuneration. In the case at hand, the Court stated that the originator receives a service (i.e. the making available of a financial contribution) against a remuneration paid to Fund O (i.e. the transfer of the proceeds from the receivables specified in the agreement).

In a second step, the Court examines whether this supply qualifies as “granting of credit”.

It further reminds that the application of the VAT exemption is an exception to the general principle of taxation. In the case at hand, the service provided by the sub-participant to the originator under the agreement is made up of a single supply “which consists essentially in a payment of capital in return for remuneration”.

Therefore, the services provided by Fund O to the banks/investment funds qualify as “granting of credit” under article 135 (1) (b) of the VAT Directive.


This case could give additional arguments to determine a potential input VAT deduction right of any securitization vehicle involved in transactions supplied under a sub-participation agreement considering the location of the originator (bank/investment fund).

As a consequence, when the originator is located outside the European Union and the receivables are EU sourced, the securitization vehicle may benefit from an input VAT deduction right. On the contrary, when the originator is located within the EU, this activity should not entitle to an input VAT deduction at the level of the securitization vehicle.

As the above should be considered with caution, our team of VAT experts stay at your disposal for any question in this respect.