In both NEC and Bookit cases the Court of Justice of the European Union (“CJEU”) analyses whether card handling / card processing services could be treated as VAT exempt, qualifying as “transactions concerning payments, transfers”.
The case Bookit concerns the provision of card handling services in connection with the sale of cinema tickets, while the NEC case deals with the provision of similar services in relation to the sale of tickets for various events (e.g. sporting events, concerts).
The card handling / processing services rendered by the NEC and Bookit consist of activities performed with the purpose of ensuring the payment of tickets by the purchasers, specifically: obtaining the debit / credit card data, transmitting this information to the merchant acquirer (to be forwarded to the debit / credit card issuers), receiving the authorization code from the merchant acquirer attesting that sale can be performed and sending a settlement file at the end of each day to the merchant acquirer containing information regarding the sales performed and the cards used by the purchasers, as well as other relevant data related to the payment.
In both cases the CJEU first noted the fact that the referring Court should assess whether the card handling services could be regarded as constituting distinct independent supplies of services from the sale of tickets or as services ancillary to the supplies of services for which the payment is made by the purchasers of such tickets.
Having in mind that reservation, the CJEU answered the questions referred by the Court, namely in essence whether the services in the case at hand enjoy VAT exemption or not.
The CJEU issued a similar judgment in these two cases, taking the view that card handling services such as those subject to its analysis could not be regarded as transactions concerning payments and transfers and, thus, could not benefit from VAT exemption.
The CJEU defines a transfer as a transaction consisting in the execution of an order for the transfer of a sum of money from one bank account to another. Further on, the CJEU restates the characteristics of ‘transactions concerning transfers’, namely that they involve changes in the existing legal and financial situation.
According to the CJEU, the functional aspects of the transaction are decisive for determining if it qualifies as a ‘transaction concerning transfers’, specifically the transaction concerned should fulfill the specific and essential functions of transfers or cause the actual or potential transfer of ownership over the funds. The CJEU considers that the extent of the liability of the service provider is also relevant for the purpose of this assessment. Where the transaction is only of a technical or administrative nature, the VAT exemption cannot be applied.
In the opinion of the CJEU, the card handling services represent only preparatory activities, performed prior to the actual payment or transfer and, although essential for the performance of the payment / transfer, cannot be regarded as VAT exempt as they do not perform the specific and essential functions of a transfer or payment transaction.
From the analysis performed by the CJEU it results that supplies of services could qualify as payment or transfer transactions if the supplier would directly debit or credit accounts, process the debit and credit of accounts or instructs such debit or credit.
The CJEU observes that the card handling services consist of merely providing the information necessary in order for the transfer / payment to be performed, the supplier assuming no liability in relation to the performance of the changes in the legal and financial situation that are characteristic of a VAT exempt transaction of payment or transfer.
Moreover, the CJEU considers that applying the VAT exemption to the supply of card handling services would be contrary to the purpose of the VAT exemption granted by the EU VAT law for financial services, given the strict interpretation of this concept.
As an additional argument, the CJEU mentions that there are no difficulties in determining the tax base and related VAT applicable to the card handling services, while the purpose of the VAT exemption granted for financial services is eliminating such difficulties.
Also, in the NEC case the referring Court raised a question regarding the interpretation of “debt collection”. However, further to establishing the VAT treatment applicable to the services analysed in the NEC case, the CJEU did not address the issue concerning the proper interpretation of this concept.
The CJEU’s interpretation and conclusions in these cases should be observed by companies performing services related to payment or transfer transactions in order to assess whether or not the services provided qualify as VAT exempt or not, depending on the actions performed and their liability in connection to the actual payment or transfer.
