On 2 May 2019, Advocate General (AG) Bot delivered his opinion in Finanzamt Trier v Cardpoint GmbH, in relation to the scope of the VAT exemption for financial services. The case concerns whether technical and administrative services provided to a bank operating cash point withdrawals falls within the VAT exemption.
Cardpoint GmbH (Cardpoint) supplied services in connection with the operation of automated teller machines (ATMs). In particular, Cardpoint installed in prescribed locations operational ATMs, equipped with computer software and hardware bearing the logo of the bank operating those ATMs. Cardpoint was responsible for ensuring the smooth running of the ATMs, which involved, amongst other things, transporting bank notes and replenishing the ATMs, installing software and providing day-to-day advice on the running of the ATMs.
When the ATMs were used for cash withdrawals, special software would read particular data from the bank card as soon as this was inserted into the machine. Cardpoint would first verify the data and send an electronic request to Bank-Verlag GmbH (Bank-Verlag) to authorise the transaction requested by the cardholder. Bank-Verlag would then forward the request to the interbank network, which would in turn pass it on to the bank that issued the bank card concerned. That bank would verify whether the account holder had sufficient funds in his account and send back, via the same route, an approval or refusal of the withdrawal requested. Upon receipt of the reply, Cardpoint would generate a data file on the cash withdrawal and, if authorised, implement the requested transaction and generate a data file on the withdrawal. The data file would then be sent as a payment order to Cardpoint’s contractual partner, being the bank operating the ATM in question. The contractual partner would transmit the unedited data files to the records system of Deutsche Bundesbank (the German Federal Bank). Cardpoint would also generate a daily, non-editable list of all the day’s transactions, which would also be sent to the BBK.
As only banks are entitled to hold settlement accounts with the BBK, they transmitted the data files to the BBK’s records system. That data transfer rendered legally binding the right of the bank operating the ATM in question to obtain reimbursement from the bank owning the account affected by the transaction and payment of any charges thereby incurred. Transfer of the data also had the immediate effect of recording in the accounts the clearing, as between the bank operating the ATM and the bank that issued the customer’s card, of the amount paid out together with any charges incurred for using the ATM.
Taking the view that the services supplied should be exempt from VAT, in accordance with Article 13B(d)(3) of the Sixth Directive 77/388/EEC, Cardpoint submitted an amended VAT return and requested that the existing tax assessment be amended, claiming that its activities were exempt from VAT. The German tax authorities rejected that request.
The German court identified the similarities between Cardpoint and the situation at issue in Bookit (C-607/14). In both cases, the services consisted of an exchange of information and the provision of assistance of a technical and administrative nature. However, the court required assistance from the Court of Justice of the European Union (CJEU), in particular, in relation to the significance to be attached to the fact that the judgment in Bookit concerned a separate agreement for the sale of cinema tickets which was absent in the present case.
In the view of AG Bot, Cardpoint’s activities were not covered by the VAT exemption.
The AG noted a number of preliminary points. First, the services making it possible to withdraw cash from a payment account constitute payment services within the meaning of EU law. A withdrawal from an ATM is a payment. Second, it is clear from the CJEU’s case law that the considerations applicable to ‘transactions concerning transfers’ also hold good for ‘transactions concerning payments’, with the result that those two classes of transaction are treated in the same way for the purposes of the exemption laid down in Article 13B(d)(3) of the Sixth Directive. Finally, the terms used to specify the exemptions laid down in Article 13 must be interpreted strictly.
In the view of the AG, in light of previous case law, there was no reason why the CJEU should deviate from the approach it adopted in Bookit, in relation to the supply of services provided by Cardpoint.
The AG noted that Cardpoint itself had acknowledged in its observations that, in accordance with the judgment in Bookit, the capture of an ATM user’s bank card data, the transmission and verification of that data and the execution of the transaction requested by the cardholder following receipt of the authorisation message from the bank that issued the card concerned, cannot fall within the scope of the exemption. The AG shared that view. None of these activities had the effect of transferring a sum of money or entailed legal and financial changes which are characteristic of the transfer of a sum of money.
Whilst the AG agreed with Cardpoint that some of its activities were essential to the payment transactions, that was not sufficient to exempt the supplies from VAT.
The AG considered the fact that Cardpoint operated in circumstances in which the operation of ATMs had been outsourced by a bank did not constitute sufficient grounds for the CJEU to reason by analogy with case law relating to Article 148 of the VAT Directive (in which the Court held that the exemption laid down in Article 148 could be applied to services provided by intermediaries acting in their own name or by subcontractors). The features and purpose of each VAT exemption do not support such an analogy based solely on the fact that Cardpoint supplies a service in circumstances in which the operation of ATMs has been outsourced.
The AG noted that the information provided by Cardpoint confirmed it was liable to the bank that operates the ATM for any malfunctioning of that ATM. In the AG’s view, this demonstrated that Cardpoint assumed no liability for the legal and financial changes involved in a payment transaction. The AG therefore concluded that the supplies were only technical and administrative services which cannot be exempt from VAT under Article 13B(d)(3) of the Sixth Directive.
Given the increased outsourcing of cashpoint operations, if the AG’s opinion is followed, it will have significant implications for similar arrangements and is likely to make them more expensive. The judgment of the CJEU is expected shortly.