The range of payment transfer related services that qualify for VAT exemption could narrow as a result of the CJEU judgment in the case of DPAS Limited (C-5/17). The judgement confirms that the payment transfer exemption should be applied narrowly and that just because a service may be essential to a payment transfer occurring, that in itself is not enough to secure VAT exemption. This case is relevant to a range of businesses, including banks, outsourcers and FinTech platforms. It will be interesting to understand in due course how the Irish Tax Authority will react to this judgment, which applies EU wide.
Background
DPAS, a UK company, operated dental payment plans on behalf of dentists, collecting and remitting amounts due to them. Following the CJEU judgment in AXA Denplan, which held payment services were taxable where they could be characterised as ‘debt collection’, DPAS put in place new contracts which sought to render its services not ‘debt collection’. DPAS did this by contractually providing its services were supplied to patients (i.e. the debtor) rather than to the dentists (i.e. the creditor). The UK’s First-tier Tribunal found partly in DPAS’s favour, holding the service was not debt collection, as debt collection can only be provided to the creditor. It also found DPAS’s payment handling services were VAT exempt. On appeal by the UK Tax Authority, the UK’s Upper Tribunal could not reach a conclusion on, firstly, whether DPAS’s services were capable of being payment services and, secondly, whether services to a debtor do constitute debt collection.
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