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money handling and vat

Money handling and VAT

14 maart 2018 - Bas -

In the Netherlands it is very common to pay ‘contactless’ with your debit card in almost any shop. In fact, many people are so used to it that they don’t even remember their PIN anymore, as they never have to use it. And less and less people carry banknotes and coins, and hardly ever use an ATM machine anymore.

Still, they exist. Most banks have an ATM machine in their own building, and especially in shopping areas there are places where you can ‘pull money from the wall’, as they say in Dutch. In some TV programs it is also recommended to do this, and collect a maximum amount per week, so that you can remain within your budget, surviving on those banknotes when buying groceries etc., and not using your debit card for anything else that week.

These ATM machines must be checked and filled, they have to work properly and be secure. Not sure if it is true, but I have heard stories that it was possible to ‘trick’ them, by leaving the top and bottom bill in the machine, and only take out the middle banknotes, thus leaving the machine to think that you didn’t take out any money at all. That doesn’t work of course, but it shows that these machines have to operate properly, and have to be smart enough and be equipped with the proper software and techniques.

And that’s exactly what a German company did. They ensured that the ATM’s of a German bank worked properly, including the supply of the soft- and hardware. Actually, the company did a little bite more than that: they also carried banknotes and took care of cash dispensing with cash that was given to them by the banks.

And because of the latter, they felt that they were not just performing installation, operating and maintenance services for the bank, but (also) financial services, which were exempt from VAT. The bank was happy with this of course, as they couldn’t deduct any input VAT charged to them, being a bank and performing (mainly) exempt activities themselves. But the tax authorities did not agree. The tax authorities argued that the German company’s main activity was the installation and maintenance of the machines.

The German court was not sure about it, and asked questions to the European Court of Justice. Specifically, they referred to an earlier ECJ case, where a UK company was operating ticket selling machines. Not just operating and maintaining them, but also processing any purchases and payments made via the machines.

You may have ordered tickets before, and in many cases, you probably have paid a ‘service fee’, or ‘administration costs’. The question in that court case was if the activities for which the customer pays a ‘service fee’, qualified as ‘financial services’. The ECJ explained that the actual customer (you and me) does not recognize these services as separate services, but just as an addition to the price for the actual service they want to buy, which is buying a ticket to gain access to the concert or cinema. Therefore, the ECJ decided that these ‘card handling’ services were not exempt from VAT, i.e. they did not qualify as ‘financial services’.

I’m a bit puzzled why the German court is not able to apply this case to the question of the maintenance of the ATM machines. Sure, in the ATM case, the service provider is actually handling money, filling the machine with banknotes. In the tickets case, it was merely the processing of payments. The latter is apparently a more administrative service, and handling money could be something else.

Let’s wait and see where the ECJ draws the line. The VAT exemption for financial services should have a limited interpretation. But if you touch the money, you may be able to touch it without VAT…

I just know that the nearest ATM is not very close by, and I rather pay with my pin in a shop anyhow, instead of using cash. Budget control? Nope, I’m sure that my memory still works OK…


Source: Preliminary questions in Case C-42/18 (Cardpoint) and Judgement in Case C-607/14 (Bookit)

Bas de Koning is an independent tax specialist (www.taxdirector.nl), specialised in indirect taxation. He’s available for interim assignments and project, advice and training. You can find more information on www.simplyvat.nl


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