Tax alert 23 – VAT treatment applicable to services related to payments performed by means of direct debit

CJEU Decision in the case C-5/17 DPAS Limited

On 25 July 2018, the Court of Justice of the European Union (“CJEU”) released its decision in the case of DPAS Limited (C-5/17). This case is relevant to businesses operating across a range of sectors, including banks, outsourcers, as well as FinTech platforms.

The CJEU has held that entities which operate dental plans on behalf of dentists provide taxable services. This conclusion is based on the fact that the services rendered by such entities are administrative in nature and limited to requesting that payments are made, the actual payment transfers being effected by the relevant financial institutions.

Facts of the case and Court Decision

DPAS operates dental plans on behalf of dentists, collecting and remitting amounts due to them. Following the CJEU judgment in AXA Denplan, which held that payment related services were taxable where they could be characterised as ‘debt collection’, DPAS put in place new contracts such that its services were provided to patients (i.e. the debtor) rather than to the dentists (i.e. the creditor).

The questions referred to the CJEU focused on:

  • the characteristics of a transaction concerning payments, VAT exempt under the EU VAT Directive, Article 135(1)(d), particularly where another party actually performs the transfer of the money, and
  • the ‘to whom’ test, specifically whether a service supplied to a person who owes the debt (i.e. to the dentist’s patient) can be characterised as a taxable debt collection service.

The CJEU has broadly followed the opinion of the Advocate General (AG), holding that DPAS’s services do not qualify for VAT exemption, on the basis that the services provided by DPAS are administrative in nature and do not represent in effect the payment transfer itself, being in fact the operation preceding the transaction concerning payments / transfers. According to the CJEU, the VAT exemption should not be granted considering that it is easy to value the services rendered by DPAS and, consequently, the VAT taxable base corresponding to the supply of services (unlike in the case of other financial transactions).

Also, this decision clarifies the CJEU’s previous judgment in AXA Denplan, where services similar to the ones rendered by DPAS were analysed.

Finally, in coming to its decision, the CJEU considered it significant that DPAS was not responsible for the failure or cancellation of a payment as a result of the direct debit as this was ultimately the liability of the patient’s and dentist’s banks.

What is new about the CJEU decision in the DPAS case?

DPAS is the latest in a long line of cases focused on payment related transactions, stretching from SDC (C-2/95) to AXA Denplan and, more recently, to NEC and Bookit.

This decision provides further clarity on the scope of the VAT exemption in case of services regarding payments / transfers across the EU. It confirms that the exemption for services concerning payments / transfers should be narrow in its application, emphasising that whilst a service may be essential to the occurring payment / transfer, that aspect in itself is not enough for the service to qualify as VAT exempt. Further, whilst the CJEU does reinforce the fact that the exemption should not be limited (only to services rendered by banks and financial institutions), it is still somewhat unclear which parties are capable of actually providing services regarding payments / transfers, treated as exempt for VAT purposes.

The decision is relevant to a host of financial services providers – from banks to outsourcers and parties involved in the cycle of payments performed through bank transfer – many of which currently benefit from the VAT exemption. Where such services are ultimately subject to VAT, it is likely that consumers and certain businesses will face additional costs or shrinking margins.

The CJEU’s logic is clear and reflects its general direction of travel on this issue. Any potentially affected business should critically review this decision and map what the impact of VAT on its wider set of payment-related services would mean.

How we can help

Should you be interested, we can provide support in establishing the correct VAT treatment for those transactions concerning payments / transfers which could affect your reporting for VAT purposes and VAT liabilities, as well as in determining the related VAT implications.



Nina Sava – Senior Manager, Indirect Tax


For additional information, please contact:

Alex Milcev, Partner – Head of Tax & Legal


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