Flashback on ECJ cases C-2/95 (SDC) – Exemptions based on service nature, not supplier or recipient

On June 5, 1997, the ECJ issued its decision in the case C-2/95 (Sparekassernes Datacenter (SDC))

Context: Tax provisions – Harmonization of laws – Turnover taxes – Common system of value added tax – Exemptions provided by the Sixth Directive – Banking transactions referred to in Article 13B(d), points 3 and 5 – Conditions for exemption relating to the person effecting the transactions and to the manner of effecting them

Article in the EU VAT Directive

Article 13B(d), points 3 and 5 of the Sixth VAT Directive (Articles 135(1)(d) and 135(1)(f) of the EU VAT directive 2006/112/EC.

Article 135 (Exemption)
1. Member States shall exempt the following transactions:
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;
(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

SDC is an association which is registered for the purposes of VAT. Most of its members are savings banks.
It provides to its members and to certain other customers who are connected to its data-handling network (hereinafter `the banks’) services relating to transfers, advice on, and trade in, securities, and management of deposits, purchase contracts and loans. SDC also offers services relating to its members’ administrative affairs.
Before 1993 SDC provided the banks with services performed wholly or partly by electronic means. Those supplies of services were analogous to those which the biggest financial institutions carry out themselves using their own data-handling centres.$
A typical SDC supply of service is described by the national court as consisting of a number of components which, added together, made up the service which a bank or its customers (hereinafter `the customers’) wished to have performed. A price was quoted for each service component appearing in SDC’s products catalogue. SDC did not receive the remuneration for its supply of services from the customers but from the banks.
SDC performed services only at the request of a bank, a customer or other persons who were authorized, under a contract concluded with the customer, to require transactions such as payments to be effected. A customer could give information to SDC only after having been authorized to do so by a bank, in particular by the issue of a payment or credit card. SDC’s name was not used vis-à-vis customers and SDC had not undertaken any legal obligation in regard to them. The documentation produced by SDC was sent out in the name of the bank.
The national court states that, in 1993, that is to say after the main proceedings had been initiated, most of SDC’s activities and assets were transferred to newly-formed companies which are now controlled by SDC’s members. One of those companies performs all the services in question. For organizational reasons, that company invoices SDC which in turn invoices its members.
The District Customs Office, by decision of 23 September 1986, and the Customs and Tax Directorate, by decision of 20 April 1990, took the view, on an application by SDC, that the services which it provided relating to certain transfers were covered by the exemption provided for by Article 2(3)(j) of the 1978 Law.
However, on 14 February 1992, the Momsnævn (VAT Tribunal) decided that none of the services provided by SDC were covered by the exemption.

Questions

1. Should Article 13B(d) points 3 to 5 of the Sixth VAT Directive be interpreted as meaning that VAT exemption should be granted for services of a type described above in paragraphs 3 and 5 [of the order for reference; essentially, these are supplies of data-handling services to SDC members and to other financial institutions]?

In that connection, is the granting of exemption from VAT under Article 13B(D) points 3 to 5 precluded where a transaction within the meaning of that provision is effected, wholly or in part, electronically?

2. The wording used in Article 13B(d) points 1 to 2 of the VAT Directive is “by the person granting [the credit]” (ved den person, som har ydet lånene) and “by the person who is granting the credit” (ved den person, der har ydet kreditten). That description is not employed in Article 13B(d) points 3 to 5.

Should any importance be attached to that difference in the interpretation of Article 13B(d) points 3 to 5?

3. A. Is it significant, as far as the application of Article 13B(d) points 3 to 5 is concerned, whether transactions are effected by financial institutions or by others?

B. Is it significant, as far as the application of Article 13B(d) points 3 to 5 is concerned, whether the entire financial service is performed by a financial institution which has a relationship with a customer?

C. If it is unnecessary for the application of Article 13B(d) points 3 to 5 that the financial institution itself should perform the entire service, can the financial institution purchase transactions wholly or in part from another person with the effect that the services performed by that other person are covered by Article 13B(d) points 3 to 5, or may particular requirements be made of that other person?

4. How is the wording used in Article 13B(d) points 3 and 4 “transactions … concerning” to be interpreted?

This question seeks to ascertain whether the words “transactions … concerning” are to be understood as meaning that VAT exemption should also be granted in cases where a person either performs only a part of the service or effects only some of the transactions within the meaning of the Directive that are necessary for the supply of the complete financial service.

5. In interpreting Article 13B(d) points 3 to 5 should significance be attached to the fact that the taxable person who requests tax exemption for transactions within the meaning of the provision effects those transactions on behalf of the financial institution in whose name the service is performed?

6. After the plaintiff’s reorganization, is it significant, as far as application of Article 13B(d) points 3 to 5 is concerned, that the services in question are now provided by a company which supplies the services to the associated financial institutions?

AG Opinion

(1) The exemptions provided for in Article 13B(d)3, 4 and 5 of the Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (77/388/EEC) do not make the transactions concerned necessarily dependent upon a part being played by a financial institution, bank or savings bank.

(2) When a financial institution which provides its customers with financial services plays a part in transactions which are exempt by virtue of the said provisions, the scope of the exemption is restricted to the corresponding legal operations carried out by the said institution with its respective customers but does not extend to the performance of auxiliary or instrumental services with which an external undertaking, distinct from the credit institution, may supply it in the form of electronic data-handling or, in general, of electronic transmission of information for the performance of the institution’s own banking transactions.

(3) In particular, the exemption at issue does not extend to the performance of services of electronic transmission of information with which an external undertaking distinct from the financial institution may supply the latter to allow the performance of transactions of transfer of funds or other transactions referred to in Article 13B(d)3 and 4 of the said Sixth Directive or the transactions relating to securities covered by Article 13B(d)5 of the said directive.

(4) It is for the court of reference to determine whether, during the transitional period referred to in Article 28(3)(b) of the Sixth Directive with reference to Article 28(4) thereof, the plaintiff undertaking actually performed financial services consisting in the management of deposits of securities, the management of purchase contracts and the management of loans, or whether, on the contrary, it confined itself to supplying the financial institutions with the technical support necessary for carrying out such management tasks for their customers. Only in the case of the first of the two alternatives would it be entitled to the exemption at issue.

Decision

1. Points 3 and 5 of Article 13B(d) of the Sixth Council Directive (77/388/EEC) of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, are to be interpreted as meaning that the exemption is not subject to the condition that the transactions be effected by a certain type of institution, by a certain type of legal person or wholly or partly by certain electronic means or manually.

2. The exemption provided for by points 3 and 5 of Article 13B(d) of the Sixth Directive is not subject to the condition that the service be provided by an institution which has a legal relationship with the end customer. The fact that a transaction covered by those provisions is effected by a third party but appears to the end customer to be a service provided by the bank does not preclude exemption for the transaction.

3. Point 3 of Article 13B(d) of the Sixth Directive is to be interpreted as meaning that transactions concerning transfers and payments and transactions in shares, interests in companies or associations, debentures and other securities include transactions carried out by a data-handling centre if those transactions are distinct in character and are specific to, and essential for, the exempt transactions.

4. Services consisting in making financial information available to banks and other users are not covered by points 3 and 5 of Article 13B(d) of the Sixth Directive.

5. The mere fact that transactions concerning the management of deposits, purchase contracts and loans are carried out by a data-handling centre does not prevent them from constituting services covered by points 13 and 15 of Annex F to the Sixth Directive. It is for the national court to determine whether, before 1 January 1991, those transactions were separate in character and specific to, and essential for, those services.

6. The mere fact that a service is invoiced by a third party does not prevent the transaction to which it relates from be

Summary

The Sixth Council Directive (77/388/EEC) exempts various banking transactions from turnover taxes. The exemption is not subject to conditions relating to the person effecting the transactions, the legal relationship between the institution and the bank’s end customers, the supply of services by a data-handling centre, or invoicing by a third party.

Source