(Unofficial translation)
Scope of the application for an individual interpretation
On July 4, 2023, your application for an individual interpretation was received, which concerns the tax on goods and services in the scope of tax consequences of granting a loan. The content of the application is as follows:
Description of the future event
The applicant is an active VAT payer with a registered office in Poland. The applicant presents the scope of the activity performed below:
- Activities of insurance agents and brokers 66 22 Z,
- Activities related to risk assessment and estimation of incurred losses 66 21 Z,
- Activities provided by collection agencies and credit bureaus 82 91 Z,
- Finance lease 64 91 Z,
- Other activities supporting financial services, excluding insurance and pension funds 66 19 Z,
- Other financial service activities, nec, excluding insurance and pension funds 64 99 Z,
- Other forms of granting loans 64 92 Z,
- data processing; website management (hosting) and similar activities 63 11 Z.
As part of its business activity, the Applicant intends to provide to its counterparty (hereinafter: the “Contractor”), who is an active VAT payer, having its registered office in the territory of the country (Poland), a service consisting in granting loans to the customers of this Counterparty (hereinafter: “Client”), on preferential terms.
In the scope of the service provided, the Applicant will each time receive remuneration from the Counterparty, in return for which the Taxpayer will grant a consumer loan on preferential terms (hereinafter: “Preferential credit service”). At the same time, such a loan will be charged with lower costs. The Applicant, on the basis of a credit application submitted by the Counterparty, provided that the Customer obtains positive creditworthiness and credibility (assessed only by the Applicant), the Taxpayer will grant a consumer loan on preferential terms. The Applicant will receive remuneration for the reduction of consumer credit costs from the Counterparty.
The applicant has the right to refuse to grant a loan to the Customer without giving a reason or to offer a loan on standard terms – other than preferential. In such a case, the Counterparty is not entitled to any claims against the Taxpayer. In addition, in such cases, the Applicant will not receive remuneration from the Counterparty. The Applicant’s remuneration will depend on the amount of consumer loans granted in a given month by the Taxpayer – to Customers – on preferential terms and will be calculated as the product of consumer loans granted on preferential terms and a percentage rate, unless the parties decide to specify this rate in a different amount having regard, in particular, to the value of the financing granted, the value of the turnover achieved in a given period as a result of cooperation, the Applicant’s workload and the nature of the activities performed by the Applicant – (hereinafter: “Remuneration”). Simultaneously, The Applicant indicates that if the Customer successfully withdraws from the loan agreement, the Applicant is not entitled to the Remuneration for this loan agreement. In the event that the Remuneration in relation to this loan agreement has already been paid, it is subject to return.
The applicant indicates that:
- The Applicant undertakes to grant consumer loans on preferential terms to the Counterparty’s Customers. Thanks to the competitive loan offer (lower installment for the Customer), the Counterparty is able to offer financing to a wider group of Customers. As a consequence, the Counterparty is able to offer and sell its services to a wider group of recipients, becomes more competitive with entities operating in the same industry and expands its customer base for future acquisition activities. In return, the Counterparty pays the Applicant the Remuneration,
- the concluded agreement ensures liquidity of the Applicant, due to the fact that the Counterparty bears part of the cost of the consumer loan.
In addition, the Applicant indicates that the Remuneration for Preferential Credit Granting Services does not refer to technical activities as part of the granted credits, i.e. they are not of an organizational or technical and administrative nature.
Question
Is the Preferential Loan Service presented, in fact, provided by the Applicant, a financial service (closely related to the granting of consumer loans) and should it be taxed on the terms provided for financial services, i.e. be fully exempt from VAT, on the basis of article 43 sec. 1 point 38 of the VAT Act?
your position on the matter
According to the Applicant, the Preferential Credit Granting Service provided by the Applicant is a financial service closely related to the granting of consumer credit and should be taxed on the terms provided for financial services, i.e. it should be subject to VAT exemption.
According to Art. 5 sec. 1 point 1 of the VAT Act, VAT applies to the supply of goods and the provision of services for consideration within the territory of the country.
According to Art. 7 sec. 1 of the VAT Act, the supply of goods is understood as the transfer of the right to dispose of the goods as owner.
Pursuant to Art. 8 sec. 1 of the VAT Act, the provision of services is understood as any provision to a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods within the meaning of Art. 7 of the VAT Act.
First of all, the Applicant would like to indicate that the Preferential Credit Granting Service provided by him will constitute (in its entirety) the provision of a service within the meaning of Art. 8 sec. 1 of the VAT Act. At this point, it should be noted that, as follows from numerous case law of the Court of Justice of the European Union (hereinafter: “CJEU”), if the provision of services is “for consideration”, it is subject to VAT only when there is a direct relationship between the services provided and the remuneration received by the taxpayer. Such a direct relationship exists where there is a legal relationship between the service provider and the recipient whereby there is an exchange of consideration, since the consideration received by the provider is a true reflection of the value of the service provided to the recipient.
In addition, the CJEU has repeatedly indicated that for the purposes of determining the nature of the provision of services for consideration, it is irrelevant whether the remuneration for such provision takes the form of payment of a commission or payment of specific fees. Such an approach has been indicated in in the judgment of 22 October 2015, Hedqvist C -264/14. In the case described in the facts of this application, the Applicant indicated that there is a legal relationship between him and the Counterparty, based on reciprocity. Pursuant to the concluded contract, the benefit includes the payment of a specified amount by the Counterparty to the Applicant, who in return undertakes to grant consumer loans, on preferential terms, to entities indicated by the Counterparty. In connection with the purchase of the service of granting loans on preferential terms, the Counterparty expands the group of recipients of its own services, and also becomes competitive on the market of financial intermediaries. The Applicant’s remuneration includes the costs that the Customer would incur if the consumer loan was granted without preferences, as well as activities performed by the Applicant based on the Applicant’s experience and know-how, such as those indicated in the facts, e.g. activities related to the analysis of customers in terms of creditworthiness and identity verification.
On the other hand, the fulfillment of the benefit by the Applicant depends on the fulfillment of the benefit by the primary debtor (Client), because granting a consumer loan is directly related to the possibility or not to charge a fee for the Preferential Credit Granting Service.
The applicant here indicates that pursuant to Art. 43 sec. 1 point 38 of the VAT Act, the tax exemption includes, among others:
- services of granting credits or cash loans and intermediation services in the provision of credit or cash loans, as well as management of credits or cash loans by a creditor or lender;
- services in the field of granting sureties, guarantees and any other security for financial and insurance transactions and intermediation services in the provision of these services, as well as management of credit guarantees by the creditor or lender.
The above provision has been implemented in Art. 135 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (Journal of Laws EU L 2006 r. 347.1 as amended, hereinafter: “VAT Directive”), according to which the Member States states exempt:
- credit granting and brokerage, and credit management by the lender;
- intermediation or any activities in the field of credit guarantees, sureties and any other collateral and guarantees and management of credit guarantees by the lender.
The CJEU has repeatedly indicated in its judgments that the terms used to define the exemptions referred to in Art. 135 sec. 1 of the VAT Directive must be interpreted strictly, as these exemptions constitute derogations from the general rule that VAT is levied on any service supplied for consideration by a taxable person.
At the same time, the CJEU emphasized that this “accuracy” does not mean that the terminology used to define these exemptions should be interpreted in a way that would deprive them of their effectiveness, e.g. in the judgment of 18 November 2004, Temco Europe SA, C – 284/03: ‘Secondly, the expressions used to designate the exemptions provided for in Art. Article 13 of the Sixth Directive should be interpreted strictly as they constitute derogations from the general principle that VAT is levied on the taxable person on any service supplied for consideration (see, in particular, Commission v Ireland, paragraph 52; judgment of 18 January 2001 in Case C – 150/99 Stockholm Lindöpark, ECR p. I -493, paragraph 25 and the Sinclair Collis judgment cited, paragraph 23). As rightly pointed out by the Advocate General in point 37 of his Opinion, the principle of strict interpretation does not mean that the terms used to define the exemptions should be interpreted in such a way as to prevent them from achieving their intended effect.
Furthermore, the interpretation of the exemptions in question must be consistent with the objectives of the exemptions provided for in Art. 135 of the VAT Directive and meet the requirements of the principle of tax neutrality on which the common VAT system is based.
It follows from that latter principle that economic operators should be able to choose the organizational model that suits them best, from a purely economic point of view, without running the risk of excluding their transactions from the exemption provided for by that provision. And so, in the first place, the very definition of “granting a loan” developed by the CJEU should be indicated. According to the case law of the CJEU, “granting of loans” is understood broadly. In the judgment of October 17, 2019, in the case of Paulo Nascimento Consulting, C – 692/17, the CJEU indicated that “granting loans” consists, inter alia, in providing capital for remuneration.
In addition, in the judgment of May 15, 2019, in the case of Vega International Car Transport and Logistic – Trading GmbH, C -235/18, the CJEU indicated that: “In the present case, as recalled in paragraph 14 of this judgment, it is undisputed that all transactions made using fuel cards made available by Vega International to its subsidiaries, including Vega Poland, are centralized by dominant company in Austria, which receives invoices from fuel suppliers showing, in particular, the purchase of fuel including VAT. Then, at the end of each month, Vega International re-invoices the fuel made available for the purpose of providing the vehicle transport service to the subsidiaries and charges them with a fee of 2%. Finally, its subsidiaries can either offset the invoices relating to the use of the fuel cards with the invoices addressed to the Austrian company or pay those invoices within one to three months of receipt. Meanwhile, it should be considered that by applying this 2% fee to Vega Poland, Vega International receives remuneration for the service provided to its Polish subsidiary. Therefore, Vega International provides a financial service to Vega Poland, financing the purchase of fuel in advance, and therefore acts in this respect as an ordinary financial or credit institution.”
According to the Applicant, it should be indicated that in order to determine whether a given service falls within the scope of financial services, the following issues should be taken into account: the essence is the very nature of the services provided, and the application of these exemptions does not depend on the status of the entity providing these services, ‘granting of credit’ consists in ‘the provision of capital, duly remunerated by the payment of interest or deferred payment of the purchase price of the goods, granted by the supplier in return for the payment of interest which is the remuneration for that credit’, if such remuneration is secured by the payment of interest, other forms of salary. This means that financing the purchase of goods in advance in exchange for an increase in the amount reimbursed by the beneficiary of this financing falls within the scope of the aforementioned exemption. The indicated provision of ‘granting credit’ should form a separate whole, the effect of which is to fulfill the specific and essential functions of such a transaction.
In addition, in accordance with established case law, the CJEU indicates that both the economic purpose of such a transaction and the interests of the recipients of the service are important.
Translating the above into the facts contained in this application, it should be indicated that:
- firstly, the proceeds from the remuneration that the Applicant receives from the Counterparty constitute remuneration for the provision of capital by the Applicant as part of consumer loans granted,
- secondly, the preferential lending service is provided to finance consumer loans (the remuneration includes the costs of consumer credit, in the amount in which it would be granted without preference, and other costs incurred by the Applicant and related directly to the granted loans),
- thirdly, the remuneration paid by the Counterparty provides capital for the Applicant.
It is also worth mentioning here the judgment of October 6, 2022, in case C – 250/21, in which the CJEU indicated that: “Therefore, the fact that a sub-participant has no recourse against the initiator in the event of default by debtors receivables from which the proceeds are transferred to it, and the fact that the receivables remain in the initiator’s assets, or that the source of funds that will be used to satisfy the sub-participant is listed in the sub-participation agreement, does not affect the essential nature of the sub-participation transaction, which consists in financing loans primary.”
To sum up, in the opinion of the Applicant, it should be considered that the Preferential credit granting services are exempt from VAT pursuant to Art. 43 sec. 1 point 38. It should be emphasized that a service such as that performed by the Applicant consists in granting consumer loans, in return for which the Applicant receives (apart from interest arising from the contracts concluded between the Applicant and customers) remuneration from the Counterparty, which partially finances the loans granted consumer loans by the applicant.
In addition, the Applicant indicates that the Preferential Credit Granting Service is closely related to consumer credit services provided by the Applicant. It is worth pointing out here that according to the agreement:
- firstly, if the Customer successfully withdraws from the loan agreement, the Applicant is not entitled to remuneration from the Counterparty for this loan agreement,
- secondly, in the event that consideration in relation to this credit agreement has already been paid, it is subject to reimbursement,
- thirdly, the payment of remuneration itself is closely related to the conclusion of a consumer loan agreement,
- fourthly, the remuneration de facto partially finances consumer loans granted by the Applicant, i.e. it covers part of the burden related to granting loans that would be applied in the case of standard contracts concluded by the Applicant (without taking into account preferences).
Considering the above, it should be pointed out that the Preferential lending service cannot be separated from the lending service. It is worth emphasizing that it is not possible for the preferential lending service to function independently, in isolation from the service of granting credit to customers – such action would be meaningless.
Considering the above, the Applicant requests confirmation of its position in the case.
Job evaluation
The position you presented in your application is correct.
Justification of individual interpretation
According to Art. 5 sec. 1 point 1 of the Act of 11 March 2004 on tax on goods and services (i.e. Journal of Laws of 2022, item 931, as amended), hereinafter referred to as the Act or the VAT Act,
The tax on goods and services, hereinafter referred to as the “tax”, applies to the supply of goods and the provision of services for consideration within the territory of the country.
Pursuant to Art. 7 sec. 1 of the Act,
by the delivery of goods referred to in art. 5 sec. 1 point 1, is understood as the transfer of the right to dispose of the goods as owner (…).
Pursuant to Art. 8 sec. 1 of the Act,
by the provision of services referred to in art. 5 sec. 1 point 1, shall be understood as any benefit to a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods within the meaning of Art. 7, including also:
1) transfer of rights to intangible assets, regardless of the form in which the legal transaction was made;
2) an obligation to refrain from performing an act or to tolerate an act or situation;
3) provision of services in accordance with the order of a public authority or an entity acting on its behalf or an order resulting from the law.
It should be noted that the concept of service has been defined very broadly. Such construction of the definition of services allows for the scope of VAT to cover all transactions performed as part of business activity. Therefore, any performance that is not a supply of goods, consisting in acting, omitting or tolerating someone’s behavior, is, in principle, a service within the meaning of the Act on tax on goods and services. Nevertheless, the following conditions must be met:
1) as a result of the obligation under which the service is provided, the other party (purchaser) is the direct beneficiary of the service,
2) the provided service corresponds to the consideration on the part of the buyer (remuneration).
In order to recognize a given service as payable, there must be a legal relationship between the service provider and the recipient, and remuneration should be paid in return for the service. There must be a direct link between the service provided and the consideration paid for it. This means that a given legal relationship on the basis of which the service is provided must result in a clear, direct benefit to the service provider.
Not every transaction constituting the supply of goods or the provision of services is subject to VAT. In order for a given transaction to be subject to this tax, it must be performed by the taxpayer.
Based on Article. 15 sec. 1 of the Act,
taxpayers are legal persons, organizational units without legal personality and natural persons who independently carry out the economic activity referred to in paragraph 1. 2, regardless of the purpose or result of such activity.
According to Art. 15 sec. 2 acts,
economic activity includes all activities of producers, traders or service providers, including entities extracting natural resources and farmers, as well as the activities of freelancers. Business activity includes, in particular, activities involving the use of goods or intangible assets on a continuous basis for profit purposes.
The description of the case shows that you are an active VAT payer with a registered office in Poland. As part of your business activity, you intend to provide to your Counterparty, who is an active VAT taxpayer, having its registered office in the territory of the country, a service consisting in granting loans to the customers of this Counterparty.
In the scope of the service performed, you will each time receive remuneration from the Counterparty, in return for which you will grant a consumer loan on preferential terms. The contract concluded between you and the Counterparty ensures your liquidity, due to the fact that the Counterparty bears part of the cost of the consumer loan.
Your doubts concern the issue of whether the Preferential Loan Service is a financial service (closely related to the granting of consumer loans) and should be taxed on the terms provided for financial services, i.e. fully exempt from VAT, pursuant to Art. 43 sec. 1 point 38 of the VAT Act.
The credit institution is regulated by the provisions of the Act of August 29, 1997. Banking Law (Journal of Laws of 2022, item 2324, as amended). Pursuant to Art. 69 sec. 1 above laws,
by the loan agreement, the bank undertakes to make available to the borrower, for the period specified in the agreement, the amount of cash intended for a specific purpose, and the borrower undertakes to use it under the conditions specified in the agreement, to return the amount of the loan used together with interest on the specified repayment dates, and payment of commission on the loan granted.
As a result of the performance by the lender, a certain amount of money becomes the property of the borrower. However, it only temporarily supplies the property of the borrower, who is obliged to return, i.e. to transfer the same amount of money to the other party of ownership.
The act of granting interest-bearing loans constitutes the provision of services for consideration and is subject to VAT.
The nature and characteristics of the preferential lending service indicate that these activities fall within the definition of the term “business activity”. In the light of Art. 15 sec. 2, second sentence, economic activity “includes in particular activities involving the use of goods or intangible assets on a continuous basis for profit purposes”. Undoubtedly, the transfer of cash (and therefore intangible assets) to the Counterparty’s client (borrower) for a specified period of time, for a fixed remuneration, constitutes the use of these funds in a continuous manner and for profit purposes. Therefore, a service of this type falls within the concept of “economic activity” as defined in Art. 15 sec. 2 of the VAT Act.
Bearing in mind the presented description of the case and the provisions referred to above, it should be stated that the activity of preferential granting of loans by you, indicated in the application, meets the conditions for recognizing this activity as taxable. Granting of loans by an entity conducting business activity, in connection with its conduct, can be identified and included in the professional plane of the individual, and thus be considered as giving rise to VAT obligations, and the lender can be considered a taxpayer within the meaning of Art. 15 sec. 1 of the VAT Act.
As a consequence, the service of preferential lending indicated in the application, as a paid service, in accordance with Art. 8 sec. 1 of the Act, is subject to tax on goods and services pursuant to the provision of art. 5 sec. 1 point 1 of the Act.
At the same time, it should be noted that both in the content of the Act and in its implementing provisions, the legislator provided for taxation of certain activities with reduced rates or exemption from tax.
Regulations regarding tax exemptions have been included, among others, in in art. 43 of the Act.
Pursuant to Art. 43 sec. 1 point 38 of the Act,
the services of granting credits or cash loans and intermediation services in the provision of credit or cash loans, as well as the management of credits or cash loans by the lender or lender are exempt from tax.
Therefore, with regard to the description of the future event presented in the application, it should be indicated that the Service of preferential granting of loans by you to the Counterparty’s customers is an activity included in the catalog of activities subject to VAT, as the provision of services for consideration, within the meaning of Art. 8 sec. 1 of the Act. Due to the fact that these services fall within the scope of the activities referred to in Art. 43 sec. 1 point 38 of the Act as mentioned directly in this provision, the service of granting loans by you to the customers of the Counterparty is exempt from tax on goods and services pursuant to art. 43 sec. 1 point 38 of the Act.
So your position is correct.
Additional information
Information on the scope of the decision
The interpretation applies to the future event that you have presented and the legal status in force on the date of the interpretation.
Instruction on the protective function of interpretation
- The protective function of individual interpretations is determined by the provisions of Art. 14k-14nb of the Act of August 29, 1997 – Tax Ordinance (Journal of Laws of 2022, item 2651, as amended). The interpretation will be able to play a protective role if: your situation is consistent (identical) with the description of the facts or future event and you comply with the interpretation.
- According to Art. 14na § 1 of the Tax Ordinance:
the provisions of art. 14k-14n of the Tax Ordinance Act do not apply if the facts or future event being the subject of an individual interpretation is an element of activities that are the subject of a decision issued:
1) with the application of Art. 119a;
2) in connection with the abuse of the right referred to in Art. 5 sec. 5 of the Act of 11 March 2004 on tax on goods and services;
3) using measures limiting contractual benefits.
- According to Art. 14na § 2 of the Tax Ordinance:
the provisions of art. 14k-14n shall not apply if the tax advantage found in the decisions listed in § 1 is the result of compliance with established interpretation practice, general interpretation or tax explanations.
Instruction on the right to lodge a complaint against the interpretation
You have the right to appeal against this individual interpretation to the Provincial Administrative Court (…). The rules for challenging individual interpretations are regulated by the Act of 30 August 2002, Law on Proceedings before Administrative Courts (Journal of Laws of 2023, item 259, as amended; hereinafter referred to as “PPSA”).
A complaint to the Court is lodged through the Director of the KIS (Article 54 § 1 PPSA). The complaint should be filed within thirty days from the date of delivery of the individual interpretation (Article 53 § 1 of the PPSA):
- in paper form, in two copies (original and copy) to the following address: Krajowa Informa- tion Skarbowa, ul. Warszawska 5, 43-300 Bielsko-Biała (Article 47 § 1 PPSA), or
- in the form of an electronic document, in one copy (without a copy), to the address of the Electronic Inbox of the National Treasury Information on the ePUAP platform: /KIS/SkrytkaESP (Article 47 § 3 and Article 54 § 1a PPSA).
A complaint against an individual interpretation may be based only on the allegation of violation of the provisions of the procedure, misinterpretation or incorrect assessment of the application of a provision of substantive law. The court is bound by the allegations of the complaint and the legal basis invoked (Article 57a PPSA).
Legal basis for issuing the interpretation
The legal basis for issuing this interpretation is Art. 13 § 2a and art. 14b § 1 of the Act of August 29, 1997 – Tax Ordinance (Journal of Laws of 2022, item 2651, as amended).
Source: gov.pl
