Bank administering loans it sold must charge VAT, KHO holds

A bank that grants housing loans, sells them to its subsidiary and keeps administering them for a fee must charge VAT on the administration services.Finlex Once the loans have changed hands, administering them for the buyer is a taxable service, not an exempt financial serviceFinlex — even though the same work would have been exempt had the bank kept the loans.

The arrangement in KHO:2026:81 is a common covered-bond structure. A Oy, the head office of a bank and representative of its Finnish VAT group, sells most of the housing loans it grants to B Oy, its wholly owned subsidiary outside the VAT group, at market price once the customer has drawn the loan. All rights and obligations pass to B Oy from the transfer date, including the credit-loss risk and the right to all income, with no action required from the borrower. B Oy develops products and manages risk but does no customer service or loan administration: A Oy's staff handles every matter between borrowers and B Oy for the whole loan term, from collecting instalments, interest and fees through amendments, renewals and extensions to any collection work — the same content as if the loans had stayed with A Oy. B Oy pays for this monthly at actual cost plus an agreed margin. Most transferred loans serve as collateral for B Oy's covered bonds at some point.

The Keskusverolautakunta had exempted the administration (collection aside) as the lender's management of credit under 41 § and 42 §(1)(3) of the ArvonlisäverolakiFinlex. The Veronsaajien oikeudenvalvontayksikkö appealed, the Korkein hallinto-oikeus stayed the case, and the Union's General Court answered on 17 June 2026 (T-184/25) that none of the Article 135(1) exemptions reaches this setupFinlex. The credit-management exemption in point (b) covers only management within the original lender–borrower credit relationship; after the transfer, the administration is a separate service supplied for consideration directly to the transferee. The Court reasoned that the exemption's purposes do not extend here: the fee is invoiced separately on a cost-plus basis, so there is no difficulty isolating the tax base, and the borrowers, who are not the recipients of the service, pay no VAT on it directly.

The same fate met the fallback arguments. Administration supplied to the loan buyer is not "any dealings in" credit guarantees or other security under point (c), even where the loans collateralise bonds the buyer issued — and reading (c) that way would deprive the point (b) restriction of any effect. Nor is it a transaction concerning debts under point (d), because the administration transfers no ownership of funds and fulfils none of the essential functions of such a transfer.

Applying that interpretation, the Korkein hallinto-oikeus reversed the advance ruling in the relevant partFinlex: the loan and collateral administration services for the sold loans are not exempt financial services under 41 and 42 §Finlex, and are taxable under 1 §(1)(1)Finlex. The court acknowledged that the 1993 preparatory works (HE 88/1993 vp) had envisaged exemption for precisely this situation — a bank continuing to administer loans it granted and sold — but held the provision's wording permits the EU-conform reading the judgment requires. A Oy's claim for legal costs was rejected.

Lenders that sell loan portfolios while retaining servicing for the buyer, including within covered-bond programmes, must therefore price the servicing fee with VATFinlex; the collection work inside the same mandate was already treated as taxable. Legal basis: Arvonlisäverolaki (1501/1993) 1 § 1 momentti 1 kohta, 41 § and 42 § 1 momentti; Council Directive 2006/112/EC, Articles 2(1)(c) and 135(1)(b)–(d); General Court judgment of 17 June 2026, T-184/25, Veronsaajien oikeudenvalvontayksikkö (EU:T:2026:399).