March 26, 2021
Cyprus Tax Tribunal rules card payment systems services are VAT exempt
On 2 March 2021, the Cyprus Tax Tribunal issued its Decision in the long-anticipated banking case on the value-added tax (VAT) treatment of payment systems services. The taxpayer was represented by EY Cyprus.
In its comprehensive Decision, the Tax Tribunal held that payment systems services (VISA, AMEX, MasterCard) constitute a single supply, which fulfills the specific and essential characteristics of the transfer of money and is therefore VAT exempt.
The Tax Tribunal conclusions nullified the specific VAT assessment. Affected businesses should consider the implications of this judgment on their operations.
After a re-examination assessment, for years 2006 through 2011, the Cypriot Tax Department assessed a 19% reverse charge VAT on charges from VISA, MasterCard and AMEX, taking the position that such services received by a Bank constitute technical, isolated services of processing, authorization and clearing concerning credit cards, which are excluded from the exemption and subject to tax.
Represented by EY, the Taxpayer appealed the assessment to the Tax Tribunal. The Tax Tribunal through its analysis held that such services were VAT exempt, constituting a single supply which meets the specific and essential characteristics of the VAT service of transfer of money. The legal position was supported on the basis of Cypriot and European Union (EU) law and case law, as well as on the final positions of courts and tax authorities of other EU Member States.
Impact on businesses
Business involved in payment-related services either as income or expense, should carefully review the impact of the Tax Tribunal decision on their operations.
Affected businesses include:
Businesses should evaluate the implications of the Decision and consider its applicability on their VAT operations. Business should consider taking steps to:
EY Cyprus, based on the above appeal, has the experience to assist companies in addressing the impact of payment-related VAT treatment. Specifically, the VAT team can assist with:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Cyprus Limited, Indirect Tax, Nicosia