On Dec 17, 2020, the ECJ/CJEU issued its decision in the case C-801/19 (FRANCK). This is a Croatian referral asking whether a service involving funds being made available by the applicant, which is not a financial institution, for payment of a one-off fee of 1%, should be regarded as ‘the granting and the negotiation of credit and the management of credit by the person granting it’ within the meaning of Article 135(1)(b) of the VAT Directive, despite the fact that the applicant is not formally referred to as the lender in the contract. Is a bill of exchange, that is to say a security containing an obligation on the issuer to pay a specific amount of money to the person designated as the creditor in the security in question or to a person who subsequently acquires the security in an manner prescribed by law, regarded as an ‘other negotiable instrument’ within the meaning of Article 135(1)(d).
Article in the EU VAT Directive
135(1)(b) and (d) of Council Directive 2006/112/EC
Article 135
1. Member States shall exempt the following transactions:
(b) the granting and the negotiation of credit and the management of credit by the person granting it;
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but
excluding debt collection;
Facts
A Croatian referral asking whether a service involving funds being made available by the applicant, which is not a financial institution, for payment of a one-off fee of 1%, should be regarded as ‘the granting and the negotiation of credit and the management of credit by the person granting it’ within the meaning of Article 135(1)(b) of the VAT Directive, despite the fact that the applicant is not formally referred to as the lender in the contract? Is a bill of exchange, that is to say a security containing an obligation on the issuer to pay a specific amount of money to the person designated as the creditor in the security in question or to a person who subsequently acquires the security in an manner prescribed by law, regarded as an ‘other negotiable instrument’ within the meaning of Article 135(1)(d)?
Question
1. Can a service involving funds being made available by the applicant, which is not a financial institution, for payment of a one-off fee of 1% of a particular
amount, be regarded as ‘the granting and the negotiation of credit and the management of credit by the person granting it’ within the meaning of Article 135(1)(b) of the VAT Directive, despite the fact that the applicant is not formally referred to as the lender in the contract?
2. Is a bill of exchange, that is to say a security containing an obligation on the issuer to pay a specific amount of money to the person designated as the creditor in the security in question or to the person who subsequently acquired that the security in an manner prescribed by law, regarded as an ‘other negotiable instrument’ within the meaning of Article 135(1)(d) of the VAT Directive?
3. Does the applicant’s service, by which, for a fee of 1% of the amount of the bill of exchange charged to the issuer thereof, it transferred the bill of exchange
obtained to a factoring company, and transferred the amount obtained from the factoring company to the issuer of the bill of exchange, and guaranteed to the
factoring company that the issuer of the bill of exchange will pay the liability arising from the bill of exchange when it becomes due, constitute:
(a) a service exempt from VAT under Article 135(1)(b) of the VAT Directive; or
(b) a service exempt from VAT under Article 135(1)(d) of the VAT Directive?
AG Opinion
None
Decision
Article 135(1)(b) and (d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (VAT Directive) must be interpreted as meaning that the exemption from value added tax on granting credit and transactions concerning other negotiable instruments laid down by those provisions, applies to a transaction which consists in the making available of funds obtained from a factoring company by one taxable person to another taxable person, for remuneration, following the transmission to the latter of a bill of exchange issued by the second taxable person, the first taxable person guaranteeing the repayment to the factoring company of that bill of exchange at its maturity.
Source
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