In a judgment dated 23 October 2014 – 6 K 1465 / 12 – the Rhineland-Palatinate Tax Court decided that the services of an outsourcing service provider in relation to the operation of cash machines are VAT exempt pursuant to section 4 no. 8 (d) of the VAT Act (UStG).
The claimant and a domestic bank had signed a “Lease, maintenance and processing agreement for cash machines” which was in place during the relevant year (2005). This agreement included the supply, maintenance and repair of the bank’s cash machines and the associated data processing (“all-in package”). In addition to its responsibility for providing fully functional cash machines, i.e. ones that had been fitted with the required software and hardware, the claimant also filled the cash machines with cash, which had been provided by the bank and arranged for it to be paid out following successful authorisation. No own decision making of the claimant was required or allowed as part of its services. The claimant forwarded the data records it created during the cash withdrawal transaction to the bank.
According to the Court, the claimant had provided an uniform service to the bank consisting of one principal service and certain ancillary services. The Court‘s conclusion is based on the fact, that a single price had been agreed between the claimant and the bank and that the claimant had offered its services as a complete package as mentioned above. In the opinion of the Court the principal service consisted of enabling cash withdrawals at cash machines.
Furthermore, the Court concluded that this unified supply was exempt from VAT in accordance with section 4 no. 8 (d) of the UStG. The individual services provided by the claimant fulfilled the specific, essential elements of the exempt supply (services in relation to payment transactions) and gave rise to changes of a legal and financial nature. To this extent, the German court adopted the decision criteria formulated by the ECJ in a ruling dated 5th June 1997 – C-2 / 95 – on the VAT treatment of services provided by a data center to a bank.
The fact that the claimant did not at any point become owner of the cash dispensed was an argument against any legal and financial changes being brought about in the case before the Court. However, the Court did not regard the issue of whether changes are brought about by the claimant directly as being the decisive point. It stated that it was enough for the services to be sufficiently closely related to the changes brought about by the bank. As such, it was sufficient for the claimant to be involved in enabling the cash withdrawals and to be responsible for data processing within the scope of the transaction.
An appeal has been lodged against the ruling (ref. V R 6 / 15). It remains to be seen whether the German Federal Tax Court (BFH) confirms the decision of the Rhineland-Palatinate Tax Court – which we believe to be correct. The implications for outsourcing in other areas of banking, such as credit card processing, will also need to be considered in the light of the appeal decision.