Updated VAT treatment of financial transactions
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This article looks at key changes in the guide to the VAT treatment of financial transactions updated by the State Revenue Service (SRS).
New examples of services
The guide now offers several examples of services associated with the provision of payment card processing services.
In one example, company B provides businesses (banks, companies etc) with local and international payment card transaction authorisation services, local and international payment card transaction processing services, the issuing bank’s international transaction copy request processing services, chargeback processing services, fraudulent transaction monitoring services, and stand-in services, as well as connections for MasterCard and communications for VISA networks.
The SRS concludes that these services have a specific nature and constitute an essential and integral part of the card transaction infrastructure in providing financial services, which may have the effect of changing the financial and legal position of the parties to the financial transaction. Such services are therefore treated as financial services eligible for a VAT exemption.
This conclusion is based on the finding repeatedly made by the Court of Justice of the European Union (CJEU) that services eligible for a VAT exemption should form a clearly visible set of services performing special functions that are essential to the conduct of financial transactions. Such services should also change the financial and legal position of the parties (bank and customer).
In another example, company K provides other businesses with card acceptance equipment network and system maintenance services, card acceptance equipment location management services, and card acceptance equipment cash supply services.
Services involving the remote operation of another entity’s IT app by ensuring its physical maintenance are essentially electronic and technical support for the financial service provider, and those activities do not change the financial and legal position of the parties. In this case there are no grounds for claiming a VAT exemption.
In yet another example, company M provides a bank with report preparation services, trader system maintenance services, recurring payment solution maintenance services, and direct credit solution maintenance services, as well as POS terminal rental, installation and repair services.
These services involve providing information and technical support. According to their economic substance, they do not amount to financial services and are not, therefore, eligible for a VAT exemption.
These conclusions are mainly based on the finding made by the CJEU that services involving the mere provision of financial information to banks and other interested parties cannot be treated as financial services. On the other hand, services that have a certain specific nature and are essential to the provision of financial services are treated as financial services. A service that is eligible for a VAT exemption should be distinguished from merely physical or technical support for the financial service provider. Any services that give a financial service provider merely physical, technical or administrative support, and do not change the financial and legal position of the parties, are ineligible for a VAT exemption.
Given the uncertainty about the correct VAT treatment of such services that existed before the updated guide was published, we suggest the companies concerned re-evaluate their practices and make any necessary changes to their VAT policy.