Flashback on ECJ Cases – C-540/09 (Skandinaviska Enskilda Banken) – VAT exemption also applies to services provided by a credit institution in the form of an issuance guarantee

On March 10, 2011, the ECJ issued its decision in the case C-540/09 (Skandinaviska Enskilda Banken).

Context: Reference for a preliminary ruling – Sixth VAT Directive – Article 13B(d)(5) – Exemptions – Underwriting guarantee provided against payment of a commission by credit institutions to the issuing companies in respect of a share issue on the capital markets – Transactions in securities

Article in the EU VAT Directive

Article 13B(d)(5) of the Sixth VAT Directive (Article 135(1)(f) of the EU VAT Directive 2006/112/EC)

Article 135
1. Member States shall exempt the following transactions:
(f) transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);

Facts

SEB is a Swedish credit institution at the head of a ‘VAT group’ (‘mervärdesskattegrupp’). That credit institution also supplies company financing services in conjunction with the issue of financial instruments.
During 2002, SEB, with another company in the same VAT group, supplied to a third company underwriting guarantees pursuant to which the members of that group undertook to acquire any shares in that company which were not subscribed at the end of the subscription period (‘the underwriting guarantee’). The members of the group were remunerated for the supply of that guarantee by payment of a commission.
Taking the view that the supply of underwriting guarantees benefited from exemption from VAT, that group neither invoiced nor accounted for VAT in respect of the payment of that commission.
Following a tax audit carried out in 2005, the Skatteverket took the view that the supply of underwriting guarantees did not constitute a transaction exempt from VAT and, by decision of 30 December 2005, issued an additional VAT assessment for the accounting period pertaining to the month of October 2002.
That decision was challenged by SEB before the länsrätten i Stockholms län (Regional Administrative Court, Stockholm), which dismissed the action.
The VAT group appealed against that judgment before the Kammarrätten i Stockholm (Administrative Court of Appeal, Stockholm). Since that court dismissed the appeal, SEB lodged a further appeal before the Regeringsrätten (Supreme Administrative Court), arguing that the underwriting guarantee at issue can be compared to other services supplied in the financial sector without giving rise to payment of VAT, such as transactions in securities, insurance, granting of credit, guarantees, or put options.
In that regard, the referring court states first that, under Swedish case-law, the issue of underwriting guarantees does not constitute an exempted transaction for the purposes of Article 13B(d)(5) of the Sixth Directive (transactions in securities).
Nevertheless, the Regeringsrätten finds that there are divergences between the national laws of a number of Member States as regards the application of the exemption provided for by that provision of the Sixth Directive to underwriting guarantee services. Thus, in Ireland and in the United Kingdom, express exemption from VAT has been introduced for such services in particular.
In addition, the referring court points out that, in its case-law on the interpretation of the exemptions under Article 13B(a) or (d)(1), (2) and (5) of the Sixth Directive, the Court has not given any clear indication as to whether one of those exemptions is applicable to services consisting in the issue of underwriting guarantees.

Questions

Is Article 13B of the [Sixth Directive] to be interpreted as meaning that the [VAT] exemptions provided for therein also include services (underwriting) which involve a credit institution providing, for consideration, a guarantee to a company which is about to issue shares, where under that guarantee the credit institution undertakes to acquire any shares which are not subscribed within the period for share subscription?

AG Opinion

The exemption provided for in Article 13B(d)(5) of the 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 is to be interpreted as including underwriting guarantee services which involve a credit institution providing, for consideration, a guarantee to a company about to issue shares, where under that guarantee the credit institution undertakes to acquire any shares which are not subscribed within the period for share subscription.

Decision

Article 13B(d)(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 laid down therein covers services supplied by a credit institution, for consideration, in the form of an underwriting guarantee to a company wishing to issue shares, where under that guarantee the credit institution undertakes to acquire any shares which are not subscribed within the period for share subscription.

Summary

Issue guarantee provided against commission in the context of a capital market share issue – Securities transactions

VAT exemption also applies to services provided by a credit institution in the form of an issuance guarantee and for consideration for a company that intends to issue shares, whereby that institution undertakes on the basis of the said guarantee to acquire the shares in which is not subscribed during the subscription period.

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