Key takeaways

1. The General Court of the European Union (“GCEU”) has been asked to clarify whether the input VAT deduction right of a supplier can be denied where a cross-border service is considered as taxable in the EU country of the supplier and as VAT-exempt in the EU country of the recipient.
2. The case concerns transaction structuring services supplied to a Luxembourg securitisation vehicle, treated as VAT-exempt in Luxembourg.
3. The referral questions whether the Morgan Stanley (C-165/17) case implies a “dual-taxability” test for input VAT deduction.
4. The outcome may significantly impact the VAT treatment of cross-border services to Luxembourg securitisation vehicles and may also have wider implications within the EU.

What's happening?

On 28 January 2026, the Swedish Supreme Administrative Court referred a question to the GCEU in Case T-96/26 – TellusTax Advisory AB concerning the interpretation of Articles 168(a) and 169(a) of Directive 2006/112/EC (the “EU VAT Directive”).

The case concerns a Swedish company, TellusTax Advisory AB (“TellusTax”), supplying transaction structuring, legal and administrative services to a Luxembourg securitisation vehicle.

• TellusTax treated the services as taxable in Sweden, but not subject to Swedish VAT due to the general B2B place of supply rules. Accordingly, TellusTax deducted the input VAT incurred on associated costs.
• In Luxembourg, the securitisation vehicle treated the services as falling within the scope of the fund management VAT exemption under Article 135(1)(g) of the EU VAT Directive.

The key issue is whether Sweden may deny input VAT deduction to the supplier on the basis that the output services are considered as VAT exempt in Luxembourg.

The challenge

The Swedish Tax Agency argues that input VAT deduction should be denied based on the logic of the Morgan Stanley (C-165/17) case of the Court of Justice of the European Union (“CJEU”), which is often interpreted as establishing a “dual-taxability” test for allowing input VAT deduction in an intra-EU supply of services context:

(i) the transactions would be taxable if carried out in the EU country where the input VAT on related costs is incurred and

(ii) the transactions must also be taxable in the EU country where they are carried out.

On that basis, where the services are considered as VAT exempt in Luxembourg, condition (ii) would not be fulfilled, and TellusTax would not be entitled to deduct input VAT.

Conversely, TellusTax argues that:

• there is no general requirement for dual taxation under the EU VAT Directive;
• Article 169(a) of the EU VAT Directive allows deduction where transactions would be taxable domestically; and
• the Morgan Stanley (C-165/17) judgment should be interpreted in light of its specific facts, which concerned a branch in one EU country incurring costs in relation to the activities of its head office in another EU country, and not as establishing a general principle applicable to cross-border supplies of services;
• differences between EU countries’ VAT regimes should not affect the supplier’s deduction right.

The referring court expressly notes that it is unclear whether the Morgan Stanley (C-165/17) reasoning should be interpreted in this context.

1. Why this matters

The case highlights a structural issue in the VAT system:

Different VAT treatments across EU countries for the same service.

This issue already regularly draws the attention of EU tax authorities due to compliance discrepancies (i.e., differences between the VIES information declared by suppliers and VAT returns declared by recipients).

In summary:

> If Sweden’s position prevails:

• Suppliers of services considered as taxable in the EU country of the supplier and VAT-exempt in the EU country of the recipient may at least partially lose their local input VAT deduction right (while the VAT-exempt treatment at the level of the recipient would in principle be preserved); or
• Such services may be requalified as taxable in the EU country of the recipient, which may potentially increase irrecoverable VAT costs at the level of the recipient (while preserving the supplier’s input VAT deduction right).

Either way, this will create competitive distortions between domestic and cross-border providers within the EU. It is also unclear whether the above outcomes would apply strictly in the context of transaction structuring services provided to a Luxembourg securitisation vehicle or will have wider implications.

> If TellusTax’s position prevails:

• Input VAT deduction right of the suppliers of services would remain based on the VAT rules of the supplier’s EU country.
• Cross-border VAT neutrality would be preserved.

Luxembourg angle

The case is particularly relevant for Luxembourg, where securitisation vehicles typically have limited or no input VAT deduction right, meaning that any requalification of services as taxable would generally result in irrecoverable VAT leakage at the level of the vehicle. Furthermore, there is currently no explicit guidance or case law confirming that transaction structuring services supplied to a Luxembourg securitisation vehicle benefit from the fund management VAT exemption. The TellusTax Advisory AB (T-96/26) referral is therefore notable in that it assumes such services to be VAT-exempt in Luxembourg, without further discussion. While the GCEU may not rule on this point, the case could nonetheless influence the debate, which remains subject to the condition that the services constitute a distinct whole and are specific and essential to the management of the securitisation vehicle.

2. Recommended next steps

Given the potential impact, affected businesses should consider:

1. Reviewing cross-border service flows to Luxembourg securitisation vehicles, in particular where transaction structuring services are involved.
2. Assessing whether service providers rely on the local provisions / guidance implementing Article 169(a) of the EU VAT Directive for input VAT deduction.
3. Evaluating potential VAT exposure where services are taxable domestically but VAT exempt abroad.
4. Monitoring developments in the case and ensuring supporting documentation of VAT positions.

How AKD can help

Our integrated Benelux VAT teams can assist with:

1. Input VAT deduction assessments for cross-border service providers
2. VAT advisory and structuring of services to securitisation vehicles
3. Interaction with tax authorities and ruling strategies (where available)
4. Monitoring and analysing developments in the case (and other relevant case-law)

Please reach out to your AKD contact to discuss how these developments may affect your organisation.