On October 11, 2013, the Supreme Court ruled that payment and collection services provided to mortgage lenders are subject to VAT
In the case at hand, the taxpayer provided services to mortgage lenders. The services consisted of ‘Service A’ and ‘Service B’.
Service A involves making an IT system available to mortgage lenders in order for them to assess mortgage applications and submit quotes.
Service B involves providing the loan funding, calculating and collecting the monthly interest, repayments and insurance premiums, as well as administrative activities.
The taxpayer considered Service A and Service B to be VAT exempt. The Dutch Tax and Customs Administration did not agree.
In 2011, the Amsterdam Court of Appeals ruled that Service A is subject to VAT, and that Service B is VAT exempt. The Court based its judgment on both the VAT exemption that applies to “transactions in respect of transfers and similar [...] and receivables” as well as on the Banking Decree. The Banking Decree, a decree from the Ministry of Finance containing guidance on the VAT treatment of banking activities, provides for a VAT exemption for “normal debt collection other than the collection of bad debts”.
- The Supreme Court judgment
According to the Supreme Court, Service B is subject to VAT, because it must be regarded as “the management of credit”.
Pursuant to the European VAT Directive only “[...] the management of credit by the person granting it” is VAT exempt. It is noteworthy that the Dutch VAT Act, contrary to the VAT Directive, does not include a specific provision for ‘credit management’. However, the Supreme Court does consider that the VAT Act must be interpreted according to the Directive (a ‘conforming interpretation’). This means that the taxpayer cannot apply a VAT exemption, as it did not grant the mortgages or credit.
The Supreme Court also concluded that Service B cannot be regarded a ‘normal debt collection’ within the meaning of the Banking Decree. Unfortunately, the Supreme Court did not deal with the other exemptions listed in the Banking Decree, including the exemption for “handling costs and service costs in respect of credit”.
The Supreme Court agrees with the Amsterdam Court of Appeals on Service A. Service A was and remains subject to VAT.
After the – positive – ruling of the Amsterdam Court of Appeals in 2011, the judgment of the Supreme Court will have come as a disappointment, as it means that customers of the services provided by the taxpayer will be subject to VAT on Service B. The Supreme Court ruling is not only relevant to the parties involved in the outsourced management of mortgages, but is also important to parties that completely or partly outsource the management of securitized and other loans, debt collection services, payment services and suchlike. Agreements regarding outsourced services generally involve a wide variety of VAT exempt and VAT taxable activities. Parties that have concluded such agreements are advised to review these agreements in light of the Supreme Court judgment.
The Supreme Court judgment does not mean that all outsourcing of payment and collection services will be subject to VAT, but it does highlight the importance of taking VAT into consideration when deciding whether to outsource activities.
The tax advisors of the Indirect Tax Financial Services Group of KPMG Meijburg & Co would be pleased to help you identify any consequences resulting from the Supreme Court judgment. They can also advise you on how to deal with and anticipate amendments to VAT legislation, policy and case law, as they have extensive experience in these matters. Feel free to contact one of these tax advisors or your regular contact at KPMG Meijburg & Co for more information.
The Banking Decree stems from the late 70s.