On 26 May 2016, the Court of Justice of the European Union (“ECJ”) released its judgments in the cases of Bookit (C-607/14) and NEC (C-130/15), which dealt with the VAT treatment of payment handling and processing services.
The ECJ has ruled that the activities of Bookit and NEC would not fall within the exemption of Article 135(1)(d) of the EU VAT Directive which exempts from VAT “..transactions…concerning…payments, transfers…”. (The corresponding Article in the Cyprus VAT Act is Article 3(c) of Part B of Schedule 7).
Particularly, the Court ruled that Article 135(1)(d) of Council Directive 2006/112/EC must be interpreted as meaning that the exemption from value added tax for transactions concerning payments and transfers is not applicable to a ‘card handling-processing’ service such as that at issue in the main
The impact of the above judgments is not limited to the UK but affects all Member States. The importance of these judgments cannot be understated and businesses involved in this industry should consider what are the possible financial implications.
A brief outline of the background facts of the above cases is presented below:
Bookit was selling cinema tickets as a disclosed agent for Odeon Cinemas (a related party) and was charging individuals/clients a ‘booking fee’ when tickets were sold via telephone or internet through a debit or credit card. The fee charged was considered by Bookit to be exempt as a “..transaction…concerning…payment, transfers…” (under Article 135(1)(d) of the VAT Directive). On the contrary, HMRC argued that the above charge was taxable standard-rated.
NEC was acting as a disclosed agent for third parties and was selling tickets for sporting events, concerts and other events. When customers bought tickets by debit or credit cards through its website, NEC was charging
them a ‘booking fee’. NEC also considered that the booking fee was VAT exempt. Again, HMRC argued that the fee was taxable standard-rated.
It must be noted that once again in arriving to its judgment, the Court referred to settled case-law and the Principles of ‘Uniform interpretation’ and ‘Strict interpretation’ with regards to VAT exemptions.
Particularly, the Court referred to its judgment in case SDC (C-2/95) and stated that the wording of Article 135(1)(d) does not specifically say that for the exemption to be applied the service concerning money transfers must be provided as a single service. The exemption may still apply if the services are broken down into separate services which separately they constitute ‘transactions concerning transfers’ within the meaning of that provision. Furthermore, the Court held that, while it is not inconceivable that the exemption at issue may extend to services which are not transfers per se, the fact remains that, that exemption can relate only to transactions, which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
In the present cases, a card handling service, such as that at issue, has the
effect of leading to the execution of a payment or a transfer and such a
service may be regarded as being essential to that execution. However, the
Court stated that, since Article 135(1)(d) of the VAT Directive must be interpreted strictly, the mere fact that a service is essential for completing an exempt transaction does not warrant the conclusion that, that service is exempted.
The Court concluded that Article 135(1)(d) of the VAT Directive must be interpreted as meaning that the exemption from VAT provided there for transactions concerning payments and transfers is not applicable to a ‘card handling’ service, such as that at issue in the main proceedings, supplied by a taxable person, the provider of that service, where an individual purchase, via that service provider, an event ticket (i.e. cinema, concert) which the service
provider sells for and on behalf of another entity, and which the individual
pays for by debit card or by credit card.
Although a lot of questions remained unanswered and new questions arise, these judgments will have an impact on businesses operating in the same industry as Bookit and NEC as well as on other businesses operating in similar line of business using the VAT exemption.
We highly suggest that all the above mentioned businesses should carefully reassess their VAT affairs.
The above rulings of the ECJ will have practical implications not only in Cyprus
but in other EU Member States as well. In principle, ECJ case law has
retroactive effect. Therefore, VAT may be levied on transactions that have
taken place in the past.
If you would like to further discuss the content of the ECJ’s judgment in the
cases of Bookit (C-607/14) and NEC (C-130/15), please contact one of our
trusted advisors from the Indirect Tax Department at KPMG Cyprus.