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VAT exemption for financial services

In this issue:

ECJ Decision in the case C-42/18 Cardpoint GmbH  

ECJ Case C-42/18 Cardpoint GmbH

The case analyzes whether the technical and administrative services corresponding to cash withdrawals benefit from the VAT exemption for financial services.


Facts of the case and Court Decision

Cardpoint supplied services in connection with the operation of ATMs for a bank, which consisted of mounting functional ATMs, equipped with computer hardware and software and was responsible for their proper functioning.

Cardpoint was tasked with transporting bank notes, made available by that bank, and replenishing the ATMs. It also was required to install computer hardware in the ATMs in question, together with any software necessary to keep the hardware running smoothly. Cardpoint also provided advice on the day-to-day running of the ATMs.

When the ATMs were used for cash withdrawal transactions, special software would read certain data from the bank card as soon as this was inserted into the machine. Firstly, Cardpoint would verify those data and send an electronic request to Bank-Verlag GmbH (“BVG”) to authorise the transaction requested by the cardholder. BVG would forward the request to the interbank network, which would in turn pass it on to the bank that issued the bank card concerned. That bank would verify whether the account holder had enough funds in his account and send back, via the same channels, an approval or refusal of the withdrawal requested. Upon receipt of the reply, Cardpoint would generate a data file on the cash withdrawal and, if authorised, implement the requested transaction and generate a data file on the withdrawal. Lastly, that data file would be sent as a payment order to Cardpoint’s contractual partner, the bank operating the ATM in question. The latter would transmit the unedited data files to the records system of Deutsche Bundesbank (German Federal Bank, hereinafer reffered to “BBK”). Cardpoint would also generate a daily, non-editable list of all the day’s transactions, which would also be sent to the BBK.

Cardpoint considered that the services supplied are exempt from VAT. It submitted an amended VAT return for 2005 and requested that the existing tax assessment be amended, invoking that the activities performed were exempt from VAT, but the German authorities rejected this approach, and the national court decided to ask the ECJ the following question:

“Is technical and administrative assistance provided by a supplier of services to a bank operating a cash point (ATM) for cash withdrawals from the bank exempt from VAT under Article 13B(d)(3) of the Sixth Directive in the case where technical and administrative assistance of the same nature provided by a supplier of services for payments by card in connection with the sale of cinema tickets is, in accordance with the judgment in Bookit, not exempt from VAT under that provision?”

The Court considered that the functional aspects are decisive in determining whether an operation concerns payment, within the meaning of Article 13 (B) (d) (3) of the Sixth Directive. To this end, to distinguish whether an operation has the effect of a transfer of funds and determines legal and financial changes (which fall within the scope of the VAT exemption), it must be determined whether the operation in question:

- transfers, effectively or potentially, the ownership of the funds in question, or

- has the effect of performing the specific and essential functions of such a transfer.

After analyzing each component of the services provided by Cardpoint, the Court ruled that the exemption from VAT provided for transactions concerning payments does not apply to supplies of services consisting in operating and maintaining ATMs, replenishing them, installing computer hardware and software in them, sending a withdrawal authorisation request to the bank that issued the bank card used, dispensing money and registering withdrawal transactions, by a service provider to a bank operating an automated teller machine.


Impact of the decision

This decision may affect the companies that provide services that, at first sight, could be considered similar to the financial services, but, in essence, they are different and are not considered exempt from VAT.
EY Romania can assist clients in analyzing and establishing the VAT treatment corresponding to the services provided.


Prepared by:
Cristina Galin – Senior Manager, Indirect Tax


For additional information, please contact:
Alex Milcev – Partner, Head of Tax&Legal


Ernst & Young SRL

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