According to a recent judgment rendered by the Amsterdam Court of Appeals (case no. 15/00074), the provision of market data against consideration and the supply of technical services should be considered separate VAT-taxed services.
The Dutch taxpayer in this case is a global financial trading company and market maker. To this end, it purchases the following services from various service providers established outside the Netherlands:
- Market Data / Bid & Ask;
- Broker services;
- Software (licenses);
- Market data;
- Rack space / co-location (defined as: “the right to install hardware in a rack or stand, as close as possible to the stock exchange, in order to facilitate the fastest possible communication with the market”).
In this case, the main question is whether these purchased services are covered by the VAT exemption in respect of (mediation for) shares and other securities. In dispute here is whether, from a VAT perspective, there is a composite supply of services (position of the taxpayer) or several separate (VATtaxable) services (position of the Dutch tax authorities). Furthermore, in dispute is whether the rack space/co-location services can be regarded as services connected with immovable property, which in that case would be taxable in the United Kingdom rather than the Netherlands.
Judgment in the appeal before the Amsterdam Court of Appeals
Earlier this year, the District Court Noord-Holland ruled in this case that the activities should be regarded as separate services (instead of one composite supply of services) which are not VAT exempt. In the appeal, the Amsterdam Court of Appeals mainly focused on whether the aforementioned services should be considered ancillary services sharing the tax treatment of other (VAT exempt) services. The Court concludes that this is not the case for any of the services, and the VAT treatment of these services should therefore be determined per individual service. In this respect, the Court took the following general rules into account and also took into consideration the fact that the services are contracted and invoiced separately:
- No indivisible service(s) - According to the Court, the various services are not so closely linked that they form a single, indivisible economic supply, which it would be artificial to split.
- No ancillary services - The Court noted that the different services constitute for customers an aim in itself, and not merely a means of better enjoying a principal service.
Especially in the case of services designated as ‘web trading’, which are offered in addition to the membership of a foreign stock exchange, the question can be asked whether these are indeed separate services. These services simplify the communication process with the stock exchange and enable the taxpayer to login directly to the exchange’s system.
For the Court the taxpayer and the Dutch Tax Authorities do not dispute that the services are VAT exempt on a standalone basis. The judgment of the Court therefore offers no new insights into the possible application of the VAT exemption for transactions in shares and other securities. However, the Court noted that information and communication services are not as such VAT exempt by virtue of the ‘Banking Decree’ of the Ministry of Finance.
Lastly, the Court ruled that the rack space/co-location services are not services connected with immovable property that are taxable in the country where the real estate is situated. They are general services that are taxed in the Netherlands. The Court deemed it relevant in this respect that the taxpayer has no physical access to the real estate.
According to the Court, reverse charged Dutch VAT is due by the taxpayer on the abovementioned services purchased from suppliers established outside the Netherlands. This reverse charged VAT represents an expense item for the taxpayer, because as a financial trading company and market maker it renders VAT exempt services and therefore has a limited entitlement to deduct VAT.
We understand that the taxpayer has now lodged an appeal in cassation.
What are your options?
The main criteria used by the Court to assess whether the services qualify as one or multiple services for VAT purposes do not come as a surprise. However, our experience is that it is not easy to use these criteria in practice, as each case has different facts and circumstances.
In such cases it is therefore advisable to review the VAT implications of (draft) contracts at the earliest possible stage and, if necessary, to conclude a ruling or agreement with the Dutch Tax Authorities. By anticipating matters beforehand and accurately reviewing the situation, a VAT exemption may be obtained.
If you purchase or render services in the field of trade in financial instruments, we recommend that you examine the potential impact of this judgment on your VAT position. If you for example trade in securities on a stock exchange established outside the EU (just like the taxpayer in this case), you may be able recover a portion of any reverse charged VAT.
Depending on facts and circumstances, co-location may qualify as a VAT-exempt rental service, which could result in cost savings for a recipient with a limited entitlement to deduct VAT.
The advisors of Meijburg & Co’s Indirect Tax Financial Services Group would naturally be pleased to be of assistance. They have extensive experience in these matters. Please feel free to contact one of them or your regular contact at Meijburg & Co.