Function-based approach to the VAT exemption of transactions concerning payments and transfers confirmed by the CJEU

on Jul 31, 2018 in News

The DPAS case of the Court of Justice of the European Union (‘CJEU’) was released on 25 July 2018.

Addressing a topical subject with the opening up of the payment services market realised by the introduction of the Payment Services Directive II, it relates to the scope of the VAT exemption of transactions concerning payments or transfers.

DPAS performed clerical and administrative support activities related to the transfer of money between bank accounts. The actual transfers of money were realised by the financial institutions.

Transactions concerning payments or transfers qualify for the VAT exemption (Article 135(1)(d) of the VAT Directive) when they trigger legal and financial changes between the parties. They must be distinguished from mere physical, technical or administrative services relating to the making of a payment or transfer.

This said, a transfer can be broken down into separate transactions that ‘concern’ said transfer and which are, as such, exempt of VAT.

This is not the case here as the CJEU considers DPAS’ services to be merely administrative steps prior to the transactions concerning payments and transfers.

The CJEU concludes that requesting a transfer from a financial institution and administering the payment plan does not amount to a VAT exempt ‘transaction concerning payments or transfers’.

It should be noted that the CJEU’s judgment, by recalling that the exemption is not subject to the condition that the transaction be effected by a certain type of institution or legal person, could help improve the VAT level playing field for payment tech providers.

However, the determination of which separate transactions can be exempt as ‘concerning’ a transfer is still not crystal clear and requires a thorough examination.

For more information, please contact Charlène Herbain.