Poland: Services provided by securitization fund qualified as “granting of credit” for VAT purposes (CJEU judgment)

Decision concerning a preliminary ruling on the application of a VAT exemption to services provided under a sub-participation agreement

“Granting of credit” for VAT purposes (CJEU judgment)

The Court of Justice of the European Union (CJEU) issued a decision concerning a preliminary ruling on the application of a value added tax (VAT) exemption to services provided under a sub-participation agreement.

The case is: O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O S.A (C-250/21)

Facts of the case

A non-standardised securitization fund (as defined under the Polish law) concluded a sub-participation agreement with banks or investment funds and requested a ruling from the Polish Minister for Finance to determine the VAT treatment of the services it provides as sub-participant.

More specifically, following the sub-participation agreement, the originator (the bank/investment fund) transferred to the sub-participant (the non-standardised securitization fund) all the proceeds from the receivables included in the agreement in exchange for a contractually agreed financial contribution. The latter was received by the bank/investment fund from the sub-participant as soon as the agreement was concluded. 

The non-standardised securitization fund treated the services as VAT exempt, reasoning that the services are like credit agreements or services hedging the risk of the debtors’ solvency.

The Polish Minister for Finance disagreed, ruling instead that these services were not VAT exempt, as they are not identical to credit agreements because:

  • The receivables remained with the originator (so the agreement does not qualify as the granting of credit).
  • The agreement contained 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 did not enjoy a claim on the originator for repayment of the remaining amount.

The non-standardised securitization fund brought an action against the tax ruling before the administrative court in Poland, which decided in favor of the non-standardised securitization fund. The Polish tax authority appealed to 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 the non-standardised securitization fund under this type of agreement.  

CJEU judgment

The CJEU explained that it is first necessary to determine whether the categories of services rendered by the non-standardised securitization fund under the sub-participation agreement qualified as services against remuneration. In the case at hand, the CJEU stated that the originator received a service (i.e., the making available of a financial contribution) against a remuneration paid to the non-standardised securitization fund (i.e., the transfer of the proceeds from the receivables specified in the agreement).

The CJEU then examined whether this supply qualifies as “granting of credit.”

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 the CJEU determined consisted “essentially in a payment of capital in return for remuneration.”

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

KPMG observation

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 (EU) 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 would not be entitled to an input VAT deduction at the level of the securitization vehicle.

Read an October 2022 report prepared by the KPMG member firm in Luxembourg


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