The First Tier Tribunal in the UK has referred a question to the European Court of Justice (ECJ) concerning the application of the VAT exemption for financial services in the case of Bookit Ltd (Case C-607/14). The following issues have been referred by the Tribunal to the ECJ:

With regard to the exemption in the EU VAT Directive (2006/12) as interpreted by the ECJ in the Sparekassernes Datacenter (SDC) case, the Tribunal has asked which principles should be applied to decide whether or not the service of debit and credit card handling has the effect of transferring funds and changing the legal and financial situation, within the meaning of paragraph 66 of that ECJ decision.

The ECJ stated in paragraph 66 of the Sparekassernes Datacenter decision that to qualify for the exemption the services provided by a data handling center must form a distinct whole and fall within the exemption. The relevant exemptions are those for transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring; or transactions in shares, debentures and other securities.

In the Sparkassernes Datacenter case the ECJ said further in paragraph 66 that in the case of a transaction concerning transfers the service must have the effect of transferring funds and entail changes in the legal and financial situation. The exempt service must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. The ECJ stated in that case that the national court must examine the responsibility of the data handling service vìs-a-vìs the banks and whether its responsibility is limited to technical aspects or whether it extends to the essential aspects of the transactions.

The Tribunal has also asked the ECJ which factors distinguish services of providing financial information without which a payment would not be made, but which do not fall within the exemption, from a data handling service which functionally has the effect of transferring funds and which the ECJ therefore considers capable of falling within the exemption?

A further question put to the ECJ by the Tribunal in the context of debit and credit card handling services is whether the exemption applies to services that result in a transfer of funds but do not include the tasks of making a debit to one account and a corresponding credit to another account. Also, the Tribunal has asked if the entitlement to the exemption depends on whether the supplier of the service obtains authorization codes directly from the bank of the cardholder or obtains the codes through its merchant acquirer bank.

These issues are important for determining whether many such services qualify for exemption from VAT under the financial services exemption in the EU Directive and the decision of the ECJ will therefore be of interest to providers of such services.