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DPAS Limited: AG opinion on scope VAT exemption for payment services

On 21 March 2018, Advocate General Saugmandsgaard Øe (the “AG”) of the Court of Justice of the European Union (“CJEU”) delivered his opinion in the DPAS Limited case (C-5/17). This case concerns the question whether a service consisting of directing, pursuant to a direct debit mandate, that money is taken from a debtor's bank account and passed on to the creditor, is a VAT exempt payment service.

23 March 2018

The outcome of this case may be of great importance to businesses that process and initiate payments, in particular where they charge a fee to the debtor. It will also be relevant to new types of payment services under PSD2.


Dental Plan Administration Services (“DPAS”), a UK-based company, provides dental plan administration. Following the CJEU AXA decision, DPAS restructured its contractual arrangements to ensure that its services were provided to patients rather than to the dentists, as was the case in AXA.

DPAS contended that its supplies of services to patients, for which it charged a plan fee, qualifies as an exempt transaction concerning payments. Its supplies to patients were, essentially, payment facilitation involving direct debit payments and paying on plan fees to the dentists. In addition, since this supply was made to patients rather than to the creditor dentists, it could not amount to ‘debt collection’. Debt collection, as a subcategory of transactions concerning payments and transfers, is excluded from the VAT exemption.

HMRC, the UK tax authority, submitted that the necessary functional analysis of the transactions made clear that DPAS did not effect any transfers or payments. DPAS’s activity is functionally the same as in the Bookit and NEC cases in that it requests payments under the authority of a mandate from the debtor to the debtor’s bank. It is the bank that actually effect the transfers. DPAS merely carries out administrative tasks for moving money between bank accounts, and recording what transfers have been made by others. DPAS does not itself debit or credit the respective bank accounts. In this context, HMRC contended that the Bookit/NEC judgments made clear that an intermediary who calls on other financial service providers to effect transfers between bank accounts does not make a supply of transactions concerning transfers in its own right.

The referring UK judge considered that it is not clear whether DPAS’ services constitute ‘transactions concerning payments or transfers’ or, if they do constitute as such, whether they are subsequently excluded from the exemption as ‘debt collection’. In particular, the referring UK judge was concerned that it was difficult to reconcile the decision of the CJEU in the Bookit and NEC cases, requiring a narrow, functional analysis of the exemption, with the statement in the earlier AXA decision that Denplan’s services in recovering payments for dentists would, in principle, have been exempt had they not amounted to debt collection.

Conclusion AG

The AG concludes that a supply of services such as in the main proceedings does not constitute a ‘transaction concerning payments or transfers’. Services such as those provided by DPAS fall, in the view of the AG, under the category of ‘mere physical, technical or administrative services’ and are subject to VAT.


The conclusion of the AG is a non-binding advice to the CJEU. If the CJEU endorses the AG’s conclusion, this potentially affects businesses that are involved with initiating and processing payments pursuant to a direct debit mandate. A narrow interpretation of the VAT exemption concerning payments would fit in the trend seen in the recent case-law from the CJEU where this VAT exemption is applied strictly.

In case your business is involved in processing or initiating payment services, we recommend investigating – possibly with your VAT advisor – the impact of this case. The case may also be relevant to new types of payment services under PSD2.

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