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VAT and Operators of ATMs

  • United Kingdom
  • Financial services disputes and investigations
  • Payment systems and digital commerce
  • Tax planning and consultancy
  • Financial institutions

23-10-2019

 

The recent Court of Justice decision in Finanzamt Trier v Cardpoint GmbH (Case C-42/18), released on 3 October 2019, has decided that operators of automated teller machines (“ATMs”) must now charge VAT on their fees for services to banks for data transmission and other technical support. This case discusses the VAT exemption for financial transactions as set out in Article 135(1)(d) of the Council Directive 2006/112 (the “VAT Directive”), which exempts transactions involving deposit and current accounts (including payments and transfers) and has found that such services do not fall into the exemption. Accordingly, if you operate ATMs, you must now charge VAT on your fees to your banking clients and this may also have an impact on convenience fees charged to consumers as well as other fees in the ATM supply chain. It may, therefore, be necessary to conduct a review of the VAT liability of the various parties who are involved in the supply chain.

Facts 

Cardpoint GmbH (previously known as Moneybox Deutschland GmbH) provided services of the operation of cash dispensers to its client, a bank, in Germany. Cardpoint set up and maintained ATMs by installing hardware and software for their proper operation, as well as transporting the cash provided by its client and the filling of the ATMs. According to the CJEU, cash withdrawals were made by: i) a card holder inserting their card into the ATM from which data was read by the ATM’s software; ii) that data was verified by Cardpoint which, in turn, requested the requisite authorisation from the bank to execute the withdrawal; iii) the bank forwarded the authorisation to the German banking association which forwarded it to the card issuing bank; iv) the card issuer then verified the card against the related bank account and provided a corresponding approval or refusal to Cardpoint; and vi) Cardpoint executed the withdrawal and generated a record of it which was passed to its client which liaised with the German Federal Bank in order to obtain the relevant amount from the cardholder’s bank account.

Cardpoint sought to amend its tax assessment in Germany and claimed that the fees it obtained from its client for the above transactions should be exempt from VAT. The German tax authority refused the refund and, following a judgement in the German tax courts, sought a reference to the CJEU on the question of whether the services provided by Cardpoint were mere “technical and administrative” services and as such were not covered by the exemption enshrined in Article 135 of the VAT Directive.

Decision

The decision of the CJEU hinged on a previous decision in a case known as Bookit which, though slightly different on the facts, concerned a taxpayer providing services that related to the transmission of cash between an entity and a consumer. The Bookit judgement found that mere “technical and administrative” services did not qualify for the exemption.

It is settled case law that “transactions in payments” (i.e. the transfer of cash from one entity to another) are exempt financial transactions. However, in order for such a transaction to be treated as VAT exempt, rather than just merely effecting the physical or technical transfer, the entity seeking to apply the exemption must also change the legal and financial positon of the parties to that transaction, that is to say, the transaction subject to the exemption must actually transfer the ownership of the funds. The transactions that Cardpoint effected did not charge the concerned bank accounts, nor did it approve the transactions itself (even though it physically passed the cash from the bank to the cardholder). The CJEU stated that Cardpoint had no “decision-making power over the transactions in question” and merely transmitted data from the card, to the bank and then took instruction from the card issuer to notify the bank that the transaction had been authorised. The CJEU stated that the actual provision of the bank notes did not constitute a transfer of ownership.

Accordingly, it was found that Cardpoint’s services did not change the financial or legal relationship between the cardholder and its bank client and therefore was merely providing administrative, logistical and technical services. Therefore, Cardpoint is required to charge VAT on the fees it charges to its banking clients and account it to the German Tax authority accordingly.

Impact

This decision goes a step further than Bookit (which concerned a cinema ticket booking system), as Cardpoint provided much more to its client than the taxpayer in Bookit, in that Cardpoint also (in addition to technical and administrative services) provided the services of maintaining the ATMs, transporting cash and providing ongoing advice to the bank on the operation of the ATMs.

If, therefore, you operate ATMs and charge fees either to your banking clients or cardholders, you are now required to account for VAT to HMRC on those fees. This will represent a hard cost to your banking clients who in the main are VAT exempt bodies and which will be unable to recover any input VAT. Ultimately the burden of this VAT will be passed, therefore, to the consumers of your clients’ financial services.

In terms of the validity of this judgement following Brexit, as it stands, any decision of the CJEU prior to exit day will still have force of law and accordingly taxpayers and HMRC can rely on the direct effect of it post Brexit. The UK Government may choose to legislate such that such transactions are caught within the exemption however, as it stands, UK VAT legislation (namely the Value Added Tax Act 1994) must be interpreted in light of this decision.

A copy of the decision can be found here, however it is yet to be released in English.

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