UK: VAT treatment of credit card handling services | KPMG | GLOBAL

UK: VAT treatment of credit card handling services, CJEU judgment

UK: VAT treatment of credit card handling services

The Court of Justice of the European Union (CJEU) on 26 May 2016 rendered its judgment in two cases on referral from the United Kingdom, concerning the value added tax (VAT) treatment of card handling services. The CJEU found that the processing of debit and credit card payments, as in these cases, did not qualify for the VAT exemption for payment transactions.


Related content


In both cases from the UK, the taxable persons processed debit and credit card payments in respect of the sale of cinema tickets and in respect of the sale of tickets to events. For the provision of these services, the entities received a (separate) fee. The services provided consisted of requesting and obtaining the card details of consumers, transmitting this data to the merchant acquirer, which in turn transmitted the data to the issuing bank (card issuer), and the receipt of the authorization code, via the merchant acquirer, whereupon the entities completed the sales transactions. At the end of the day, a settlement file was re-transmitted to the merchant acquirer, listing all the sales actually effected in the course of the day. One of the entities used a payment gateway of a third party to send the card details and the settlement files to the merchant acquirer. 

The question posed to the CJEU was whether the services performed qualified as “transactions concerning payments and transfers” that would be VAT-exempt. In concluding that the processing of debit and credit card payments, as in these cases, did not qualify for the VAT exemption for payment transactions, the CJEU provided greater clarity about the scope of the VAT exemption for payments—in particular, with regard to the scope of the term “specific and essential functions of transfers.”


Read a May 2016 report prepared by the KPMG member firm in the Netherlands: Processing of debit and credit card payments not exempt from VAT

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal