On July 28. 2011, the ECJ issued its decision in the case C-350/10 (Nordea Pankki Suomi).
Context: Reference for a preliminary ruling – Sixth VAT Directive – Article 13B(d)(3) and (5) – Exemptions – Transfers and payments – Transactions in securities – Electronic messaging services for financial institutions
Article in the EU VAT Directive
Article 13(B)(d)(3) and (5) of the Sixth VAT Directive. Article 135(1)(d) and (f) of the EU VAT Directive 2006/112/EC.
Facts
- Nordea is the Finnish subsidiary of Nordea Bank AB, whose registered office is in Sweden. It is a merchant bank which handles both retail and corporate banking. Its banking activities include purchase and brokerage of securities and currency and it also offers investment and fiduciary services. Nordea is the representative of a VAT group formed by the Nordea group.
- Nordea purchased services from Society for Worldwide Interbank Financial Telecommunication – SWIFT SC (‘SWIFT’), a cooperative society owned jointly by more than 2 000 financial institutions in more than 200 countries.
- SWIFT manages a worldwide electronic messaging service for financial institutions (‘swift services’) which enables more than 9 000 banks and financial and securities management institutions and other corporate clients to exchange between themselves standardised financial messages with the help of software developed by the undertaking itself and its international secure data exchange network. By way of that data exchange network which it set up and maintains, SWIFT processes in particular messages concerning interbank payments and transactions in securities. The financial institutions affiliated to SWIFT are connected to the network by their own computer systems through a special gateway. In order to access its services SWIFT requires its clients to use computer hardware it has approved in advance.
- Interbank payments may be divided into domestic and international payments. Swift services are used mostly for international payments, but the proportion of domestic payments is increasing.
- According to the referring court, the procedure for the transmission of messages concerning interbank payments provides that when a message is sent via the SWIFT network the issuing bank receives a first acknowledgement that the message was received for processing by SWIFT. That formality marks the start of SWIFT’s financial responsibility for the transmission of the message concerned and for the performance of the transaction in accordance with that message. After the arrival of the first acknowledgement, the transaction described in the relevant message becomes binding. From the moment the receiving bank informs the system that it has received the message, SWIFT’s responsibility for the performance of the transaction ends. At the same time, SWIFT sends the bank which gave the order an acknowledgement that the message has been received.
- In addition to those payment transactions swift services are also used to carry out cross-border securities transactions. According to the referring court, only the registration of shares in the client’s securities account made via swift services provides protection against third parties, although the ownership of the securities has already been transferred at the time the transaction on the stock exchange is made. SWIFT’s responsibility for the messages connected with transactions in securities is similar to that described for interbank payments.
- In order to maintain banking secrecy, SWIFT may and must open only the message fields which are necessary in order to establish their conformity with message transmission standards.
- Nordea’s expenses for swift services, the connection and maintenance of that connection to those services were EUR 1 999 559.96 for the 2001 financial year. In accordance with the reverse charge procedure, EUR 439 903.19 in VAT have been paid on that amount.
- By decision of 22 February 2006, the Konserniverokeskus (department responsible for the taxation of large undertakings) dismissed the claim for a VAT refund submitted by Nordea for the 2001 financial year. The claim related to the VAT paid on swift services in December 2001.
- Nordea brought an action before the Helsingin hallinto-oikeus (Administrative Court, Helsinki) (Finland) seeking the annulment of the decision of the Konserniverokeskus and the refund of the VAT it had paid for swift services in accordance with the reverse charge procedure.
- By decision of 29 February 2008, the Helsingin hallinto-oikeus dismissed Nordea’s action, basing its decision on the applicable provisions of national law, Article 13B(d)(3) of the Sixth Directive, and Case C-2/95 SDC [1997] ECR I‑3017.
Questions
Must points 3 and 5 of Article 13B(d) of the Sixth VAT Directive 77/388/EEC 1 be interpreted as meaning that the swift services described in section 1 of this order used in payment transactions and securities transaction settlements between financial institutions are exempt from value added tax?
AG Opinion
None
Decision
Article 13B(d)(3) and (5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the exemption from value added tax under that provision does not cover electronic messaging services for financial institutions, such as those at issue in the main proceedings .
Summary
Nordea Pankki Suomi Oyj is the Finnish subsidiary of the Swedish Nordea Bank AB. Nordea uses SWIFT services for interbank payments and cross-border securities transactions. Nordea requests a refund of the VAT paid in December 2001 on the SWIFT services. The Finnish tax authorities state that the services are exempt from VAT. The Finnish court has referred a question for a preliminary ruling in this case. The European Court of Justice (CJEU) has ruled that the VAT exemption does not apply to electronic messaging services for financial institutions (SWIFT services). The CJEU considers in this regard that SWIFT’s liability is limited to the technical aspects and does not extend to the characteristic and essential elements of the financial transactions. The CJEU also considers it important that the SWIFT services are electronic messaging services that are solely intended to send data. They therefore do not themselves fulfill any of the functions of any of the financial transactions referred to in art. 13B(d), points 3 and 5, Sixth VAT Directive, that is to say functions which have the effect of transferring the money or the securities and thus do not have the characteristics thereof.
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