The judgment of the EU Court of Justice CJEU of Justice (CJEU) in the DPAS case (C-5/17) again underlines that the CJEU tends to interpret the VAT exemption for 'payments and transfers' restrictively. For parties that are not involved in the clearing- and settlement process between financial institutions, it has become a challenge to successfully claim a VAT exemption. The approach of the CJEU also raises the question how exemptions can be applied around modern payment solutions offered by businesses that are generally not part of the traditional financial sector.


DPAS (Dental Plan Administration Services) operates a payment plan where it takes care of payments to dentists by their patients. Instead of paying the dentist directly, the patient grants a mandate to DPAS to debit his bank account. On that basis, DPAS 'initiates' the payment by requesting the patient's bank to transfer the amount due to DPAS, which in turn takes care that the dentist receives his money.

The CJEU ruled that initiating a transfer of money from one bank account to another does not fall under the VAT exemption for 'payments and transfers'. According to the CJEU, a request to carry out a payment does not change the legal and financial positions of the parties involved (i.e. the patients, dentists and their banks). Instead, the banks (that carry out the transfers between the bank accounts) change the legal and financial positions. Although the activity of DPAS is essential for a transfer of money, it should in the view of the CJEU merely be seen as a necessary step prior to a VAT exempt transaction concerning payments and transfers.

Interaction with the AXA Denplan judgment

This judgment builds further on the AXA judgment (C-175/09), in which the CJEU dealt with the reverse situation. In the AXA judgment, the payment plan operator (Denplan) collected payments for dentists from their patients, also by initiating direct debits through the UK Bankers’ Automated Clearing System (BACS). The CJEU suggested in the AXA judgment that this service could be seen as a VAT exempt transaction concerning payments and transfers. However, without testing the requirements to qualify as a VAT exempt transaction concerning payments and transfers, the CJEU eventually held that such a service qualifies as 'debt collection'. Debt collection is explicitly excluded from the VAT exemption for payments and transfers and therefore VAT taxable.

In the DPAS judgment, the CJEU referred to the AXA judgment and suggested that in AXA, the CJEU merely assessed whether the service should be viewed as 'debt collection' without assessing whether the service could fall inside the scope of the VAT exemption for payments and transfers in the first place. This is striking because in AXA the referring UK Court explicitly asked the CJEU to clarify whether or not Denplan's service could be seen as a transaction concerning payments and transfers.


This judgment again confirms the trend that the CJEU interprets financial VAT exemptions in an increasingly strict manner. When it comes to the exemption for payments and transfers the CJEU already suggested in the Bookit case (C-607/14) that services that are not part of clearing- and settlement processes between financial institutions fall outside the scope of the exemption.

At the same time the CJEU keeps mentioning that for the application of the VAT exemption, it is irrelevant who carries out the transaction. In practice however this strict interpretation will make it a challenge for parties other than financial institutions to apply an exemption.

Activities around payments and transfers are increasingly carried out by businesses that are not banks or traditional financial institutions. Such businesses facilitate payments or are in some other way involved in the money flow. For example, apps that facilitate payment for car parking or online platforms that facilitate the payment of hotel services. It depends on the business model whether a VAT exempt or VAT taxable status is preferred. In practice, it is not always clear to what extent such activities entail changes in the legal and financial position the concerned parties and thus, whether they are VAT exempt or VAT taxable.

What makes it even more challenging is that such businesses often operate globally and therefore have to deal with tax administrations in multiple jurisdictions. Not all tax administrations have the same level of expertise and knowledge when it comes to understanding complex financial and technological services. In practice, this may result in different qualifications of the same service, leading to mismatches. At the same time, we see a global trend where tax administrations increasingly seek to secure tax collection by appointing businesses that are involved in the money flow (such as payment service providers) to act as tax collectors for third parties. This entails significant administrative burdens and financial risks for such businesses.

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