Ekspres Bank successful before the Supreme Court in VAT case of general public importance
The Danish Supreme Court has ruled in favour of Ekspres Bank A/S that processing services supplied by an English company are not subject to VAT, as the services are covered by the VAT exemptions for payments and transfers. Plesner represented the bank.
Like many other financial institutions in Denmark, Ekspres Bank does not own a data processing system for the management of credit, account entries, registration of incoming and outgoing payments, and collection of payments. Therefore, Ekspres Bank purchases data processing services from the external supplier FIS Certegy.
The core of FIS Certegy's data processing services consists of calculating interest and payment installments and initiating transfers of funds from the borrowers to the bank. This initiation occurs on the basis of a data file generated by Certegy, which is sent via the Danish financial transactions company Nets to the borrower's bank. The transfer is made, and FIS Certegy registers the incoming payment, writes down the loan amount and calculates future payments.
In 2007, Ekspres Bank requested a binding advance ruling from the Danish tax authorities on whether the services supplied from FIS Certegy are covered by the VAT exemption for payments and transfers. The Danish tax authorities ruled that the services were not covered by the exemption and, thus, were subject to VAT. The advance ruling was upheld by the Danish National Tax Tribunal, the highest Danish administrative appeals body in tax matters.
The Tax Tribunal's ruling was brought before the High Court of Eastern Denmark, which ruled in favour of the Danish Ministry of Taxation. The High Court found that FIS Certegy was not responsible for neither the payment order nor the actual transfer of funds from a borrower's bank account to Ekspres Bank, but instead only supplied data files for bookkeeping and administration.
Before the Supreme Court, the Ministry maintained that FIS Certegy was not responsible for the payment order, and that FIS Certegy's services therefore did not constitute a VAT-exempt payment transaction. The Ministry argued that in the alternative, the services constituted debt collection, which is subject to VAT.
The Supreme Court reversed the ruling of the High Court and found that FIS Certegy's services constitute VAT-exempt services concerning payments and transfers. The Supreme Court emphasized that on behalf of Ekspres Bank, FIS Certegy generates a payment data file, which initiates a payment order and thereby leads to a change in the legal and financial situation existing between the borrower and Ekspres Bank. FIS Certegy is responsible for the timely and adequate delivery of the payment data files.
Therefore, the Supreme Court found that FIS Certegy's service constitutes a transaction concerning transfers, and not just a technical supply made available to Ekspres Bank by FIS Certegy. According to the Supreme Court, the generation and sending of payment data files constitutes a principal supply to which the others elements of FIS Certegy's services are ancillary, so that they receive the same VAT treatment as the principal supply.
Also, the Supreme Court found that FIS Certegy's services do not constitute debt collection subject to VAT, as FIS Certegy is not tasked with collecting the debt where the borrowers do not pay on time, in breach the loan contract.
Therefore, the Supreme Court ruled in favour of Ekspres Bank that FIS Certegy's data processing service is exempt from VAT. The Supreme Court's ruling will likely impact the VAT treatment of similar data processing services in the financial sector.
Attorney Jakob Krogsøe from Plesner conducted the case.