The Cost of Separation: The Decision in A Oy
In this article for Tax Journal, Caroline Inker and James Morgan consider whether the ruling in A Oy could disrupt European securitization by undermining assumed VAT neutrality for credit management and requiring closer scrutiny of transaction structures and legal relationships.
"This decision has the potential to disrupt the European securitization market, where the management of credit VAT exemption has long been relied upon routinely. With the assumption of VAT-neutrality now called into question, renewed focus will be required on the structuring of transactions, the legal mechanisms effecting transaction steps, and the legal relationships between the parties. This is expected to be of particular concern in jurisdictions with a derogation in wording in the domestic application of Art 135(1)(b). ... It remains to be seen whether HMRC will follow the decision in A Oy or continue with their existing practice of permitting the VAT exemption to apply to a third-party provision of loan servicing that satisfies the comprehensive, open book, 'end-to-end' execution criteria stipulated in HMRC's VAT Finance Manual at VATFIN3135."
