Requirements for VAT exemption in financial transaction intermediation services. Spanish TEAC resolution of November 21, 2019


New resolution of the Central Economic-Administrative Court regarding VAT exemptions related to financial operations. In particular, this resolution refers to the intermediation and negotiation services provided by a company to certain financial entities for the sale of credit cards to individuals. In this regard, the underlying issue is to determine whether or not such services are VAT exempt under Article 20. One 18º.m) of the Spanish VAT Law, whereby:

“The following financial operations will be exempt from VAT:

  1. m) the mediation in the exempt operations described in the previous letters of this number and in operations of the same nature not carried out in the exercise of business or professional activities.

The exemption extends to the services of mediation in the transmission or placement in the market, of deposits, cash loans or of securities, made on behalf of the issuing entities, of the holders thereof or of other intermediaries, including the cases in which the insurance of such operations mediates”

In this case, the tax inspection determined that the services provided could not be included within the scope of said exemption, so they would be subject and not exempt from VAT. On the contrary, the entity considers that the activity meets all the requirements to qualify as a financial intermediation, exempt from VAT, since it operates as an independent third party, other than the buyer and the seller, who carries out work to approximate the parties and does what is necessary for the legal business be finally concluded.

The Court uses the European Directive to try to reconcile the concepts “negotiation” (contained in the Directive) and “mediation” (contained in the Spanish legislation). In addition, from the European case-Law, it concludes that two requirements are necessary to apply the exemption to the negotiation services of financial operations:

  1. That the provider of the negotiation service is a third party, different from the buyer and the seller in the main transaction.
  2. That the functions carried out go beyond the provision of information and the reception of applications. These functions must, therefore, be reflected in the indication of the occasions in which the operation can be carried out and, once such occasions exist, do what is necessary for it to be carried out.

The TEAC extends these requirements to the mediation concept referred to in the Spanish legislation and, in accordance with it, together with the doctrine of the Supreme Court, establishes that the mediator must be a third party independent of the parties, whose aim is to match of wills for the conclusion of a future contract in which it does not participate.

In accordance with this definition and requirements, the Court proceeds to analyse the legal relationship between the claimant and the financial entities to which it provides services. From this analysis and the information contained in the file, it concludes that the claimant entity is always identified as an independent third party of the bank, where the taxpayer’s employees acted as financial intermediaries of the banking entity, identifying itself as such in the telephone sale and a referral of this condition was stated in the documentation given to the final client, so there is enough evidence that the potential client knew that he was dealing with an independent third party, intermediary. In addition, since its functions went beyond the provision of information, doing everything possible for the main business to be carried out, the two requirements established for the services to fall within the exemption of Article 20 were met. Therefore, the Court estimates the taxpayer’s claim, declaring the services provided thereof exempt from VAT.

Again, especially in the financial sector, it is clear the difficulty and importance of correctly qualifying the services performed, as well as the correct interpretation of the VAT rule, to avoid risks arising from incorrect treatment for VAT purposes.

The resolution has reference number 00/00028/2016/00/00

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