In a decision which will be welcomed by loan market participants, the Court of Justice of the European Union (CJEU) has ruled in SKAS (Case C-250/21) that the supply which a sub-participant makes to the grantor under a funded sub-participation agreement falls within the "granting of credit" VAT exemption.
By way of background, the case was a Polish referral to the CJEU and involved a party (the sub-participant) paying an upfront amount to a lender (the grantor) who had granted a loan to a borrower (the debtor). In return for that payment, the grantor agreed to pay the sub-participant the proceeds it received from the debtor. The sub-participant was a Polish securitisation fund, but other than that there did not appear to be anything to distinguish the transaction from a typical sub-participation entered into under standard form LMA documentation. It contained the usual features that the sub-participant provided liquidity to the grantor, the grantor transferred the credit risk to the sub-participant and the sub-participant had no recourse (against the grantor or the debtor) if the debtor defaults.