It is common practice for banks to use outsourcing services related to operational activities, including IT services and accounting and tax services. one typical services purchased from external entities are IT services for the processing of information related to the operations of bank customers using payment cards. In this context, the provisions of the Act of 11 March 2004 on tax on goods and services (Journal of Laws of 2011, item 1054 as amended, hereinafter: ‘VAT Act’) concerning the exemptions concerned.
The VAT Act provides for a catalogue of exemptions for services related to financial services and services provided by banks. According to Article 43(1)(40) VAT laws are exempt from the tax of cash deposit services, cash accounts, all types of payment transactions, remittances and transfers of funds, debts, cheques and bills and brokering services in the provision of these services.
From the scope of this exemption provided for in Article 43(1)(40) it appears that the exemption is subject to all types of financial services, whereas Article 43(13) The VAT Act extends the scope of this exemption, indicating that the exemption also covers ancillary services to financial, insurance services (this applies to the services listed in Article 43(1)(7)(37-41) VAT Act).
It also follows from the provision that ancillary services may be exempted, provided that they are part of the main service, but they themselves constitute a separate whole, and are appropriate and necessary for the provision of the main service.
The tax authorities point out that the above condition should be understood as meaning that for the application of the tax exemption to ancillary services to financial services, it is essential that a particular service is part of a financial service and, as a separate whole, is intended (was necessary) to perform the essential functions of an exempt financial service and is appropriate for the principal service. (cf.
Interpretation of the Director of the Tax Chamber in Katowice 10 May 2013 IBPP2/443-106/13/RSz).
In practice, taxpayers often face concerns from tax authorities about the scope of the exemption in the case of various technologically advanced IT and IT support services.
Consequently, in many cases the involvement of the Directors of Tax Chambers and administrative courts is required to resolve such doubts.
The cases that most often come to the vokands and find a solution only before the competent Provincial Administrative Court or the Supreme Administrative Court concern extensive support services which may not be absolutely necessary to perform the main service, but significantly improve its performance, affect the quality of its performance, speed, efficiency and security.
one the taxpayer asked the tax authority whether the exemption in question on the basis of ancillary services could be applied to the use of services referred to in colloquially as ‘back office’, i.e. custodial activities consisting in the processing of information in support of the custodial function performed by the relevant entity in Group B, including the execution of technical activities related to the opening and maintenance of investment and cash accounts of the Funds, the preparation of monthly reports for customer managers and for the management of the Clients, the preparation of reports for supervisory authorities, the preparation of reports, the verification by other entities in the Group for which the applicant provides services, presenting a list of the abovementioned accounts and additional support and internal control (also performed occasionally) covering certain activities.
In this particular case, the Director of the Tax Chamber considered that the exemption could not be applied, as these are technical support services which do not have characteristics, functions characteristic of the exempt service (i.e. financial service).
According to the tax authority, ‘In the same case, the Services provided by the Applicant cannot be regarded as a relevant service, since even if it were a separate whole, it does not cover a function characteristic of financial services exempt from VAT.
The content of the proposal does not suggest that the Service provided by the Applicant entails a change in the legal and financial situation of the final buyer Financial services provided by entities in the group, on the contrary, according to the circumstances presented, these activities are limited to technical aspects only" (cf.
Interpretation of the Director of the Tax Chamber in Katowice from 10 May 2013 IBPP2/443-106/13/RSz).
In another similar case, the Applicant asked the tax authority whether the exemption could benefit from services provided to a financial institution, such as collecting information on business requirements, creating documentation for individual vendors (vendors), coordinating technological projects.
In this case, too, the answer of another tax authority was negative (the case was handled by a different authority than in the case discussed above - the Director of the Tax Chamber in Warsaw).
In its reasoned decision, the tax authority indicated that ‘the services provided by the Applicant are purely IT and technical and administrative. These banks (financial institutions) could and often carry out their own activities (using internal human and technical resources).
The fact that, for economic reasons, they decide to subcontract them to external entities does not prejudge their necessity for financial services. For the performance of financial services by contractors, services purchased from the Applicant are not necessary.” (cf.
Interpretation of the Director of the Tax Chamber in Warsaw from 4 January 2013 IPPP2/443-1045/12-2/RR).
The same tax authority in the interpretation of 18 September 2013 (The signature. IPPP1/443-604/13-4/AW) In response to the taxpayer’s question of the possibility of applying the exemption in question to ancillary services provided to a bank consisting in the handling and monitoring of financial transactions carried out at ATMs, the possibility of financial transactions carried out with ATMs and a proper settlement between the participants in the system, he concluded that the service would be exempted.
The tax authority considered that the activities described fulfil the conditions for their recognition as one, an integral whole, but they do not directly constitute the provision of payment, transfer and transfer services, but merely consist in the provision of a specific solution used by banks or financial institutions in their business, but may constitute ancillary services to financial services within the meaning of Article 43(13) VAT Act.
In the explanatory memorandum, the tax authority referred to the case law of the Court of Justice of the European Union, to the interpretation of Article 135(1) point (d) and (f) Directive 2006/112.
These are provisions corresponding to the provisions of the Polish VAT Act concerning the exemption of the financial and auxiliary services concerned.
Under the terms of the Directive, the exemption covers transactions, including via deposit accounts, current accounts, payments, transfers, debts, cheques and other transferable financial instruments, excluding debt recovery and transactions, including through, but excluding the storage and management of shares, shares in companies or associations, bonds and other securities, excluding documents establishing the legal title to goods, and rights or securities.
In the judgment in the case C-2/95 Sparecassernes Datacenter (SDC) The Court held that neither the way in which the services are carried out nor the legal nature of the service provider nor the absence of a direct contract of the service provider with the final recipient exclude the application of the exemptions referred to in Article 13 (B) (D) points 3 and 5 VI The Directives, provided that the services provided by the entity concerned are seen by the client of the Bank as part of the financial service received.
It should therefore be stated that the trend of tax authorities that we have seen recently is a very cautious approach to the possibility of extending this exemption through its application to modern technology support services, which almost all banks and financial institutions currently benefit from.
Administrative courts also in many cases refuse to apply the exemption to support services provided to banks.
For example, in the Supreme Administrative Court judgment of 25 July 2013 (reference no. I FSK 1139/12) The court considered that the exemption could not be applied to loan support services, including the analysis of the loan portfolio, monitoring of loan processes, generating credit risk information. In the opinion of the NSA, these services are not appropriate and necessary for the provision of lending services.
The NSA also considered that the exemption is not covered by the services related to the acquisition of contact details for the bank of potential customers. In the judgment of 1 October 2013 (reference no. I FSK 1513/12) The NSA considered it to be a service having financial service characteristics, but consisting of a larger comprehensive marketing service, which prejudges the absence of an exemption.
It's worth paying attention to. one of the latest judgments of the WSA in Warsaw, dated 31 October 2013, reference no. III SA/Wa 447/13. The Court of First Instance decided to dismiss the taxpayer from the individual interpretation issued by the Director of the Tax Chamber in Warsaw (Event No. IPPP3/443-749/12-4/SM).
In the present case, the taxpayer asked whether comprehensive credit card management and processing services for operations carried out using them could benefit from the exemption as ancillary services to financial services provided by the bank.
The reply of the IS Director in Warsaw was negative, the tax authority disagreed with the possibility of applying the exemption, indicating that the requested service does not constitute an element of the essential service but is only purchased by the bank in order to provide the financial service by the bank to its client itself. The tax authority relied on the interpretation mentioned above Article 135 Directive 2006/112.
The Administrative Court, on the other hand, concluded that the tax authority should first order to apply provisions of Polish law, i.e. Article 43(1)(40) and Article 43(13) VAT Act. According to the court, within the meaning of these provisions, IT support services for the operation of payment cards for the bank fall within the scope of these ancillary services within the meaning of the Polish law and can therefore benefit from the exemption.
In conclusion, it is important to point out that to date there is no uniform interpretation of the application of the VAT exemption to ancillary services to banks and financial institutions.
This is mainly due to the high level of technological progress of ICT services and the development of new solutions for comprehensive IT support to banks. Each such service requires an individual analysis of the possibility of applying the exemption.
In such cases, it is appropriate to consider a request for an individual interpretation, with an important way of describing the subject matter of the service and an appropriate argument for a positive outcome.