Conditions for granting VAT exemption for payment and transfer operations

In brief

The Court of Justice of the European Union (hereinafter "the CJUE") has recently published its judgement in case C-5/17 Dental Plan Administration Services Limited (hereinafter “DPAS” or “the Company”). The judgement confirms that an essential condition for transactions concerning payments and transfers to qualify for VAT exemption is that they have the effect of making the legal and financial changes characteristic of the transfer of a sum of money.

In detail

UK company DPAS designed, implemented and managed dental plans, involving transfers from patients' bank accounts into their dentists’ or insurers’ bank accounts. Patients made payments from their bank accounts into the DPAS bank account by way of direct debit mandates. DPAS subsequently paid the dentists the value of the dental services rendered. The company was remunerated as follows:

• By dentists, for the provision of dental payment plan services, for which the company collected VAT;
• By patients, for the provision of dental payment plan “facilities”, for which the company did not collect VAT, considering that the VAT exemption for transactions concerning payments and transfers was applicable.

The UK tax authorities considered that the services provided to the Company for the benefit of patients did not represent transactions concerning payments and transfers, qualifying for the VAT exemption under art. 135, para. (1), lett. (d) of the VAT Directive (i.e. the equivalent of art. 292, para. (2), lett. (a), point (3) of the Romanian Fiscal Code).

The CJUE ruled that the services rendered by the Company:

• did not have the effect of making the legal and financial changes characteristic of the transfer of a sum of money;
• were merely an administrative step prior to the transactions concerning payments and transfers; and therefore
• did not represent transactions qualifying for the VAT exemption applicable to transactions concerning payments and transfers, but rather constituted taxable supplies.

The takeaway

The VAT exemption for transactions concerning payments and transfers applies only to operations that have the effect of making the legal and financial changes characteristic of the transfer of a sum of money. This approach is confirmed by previous CJEU judgements in cases C-175/09 AXA UK PLC (28 October 2010) and C-607/14 Bookit Ltd (26 May 2016). In light of this latest CJUE judgement, we recommend that all transactions involving payments be analysed to determine whether they can benefit from the VAT exemption applicable to transactions concerning payments and transfers.