Cyprus Tax Tribunal ruled, in the Banking case represented by EY, that payment systems services (VISA, MasterCard, Amex) are VAT exempt.


On 2 March 2021, the Cyprus Tax Tribunal issued its Decision to the long-anticipated Banking case represented by EY. In its comprehensive well-analyzed, well-positioned and drafted Decision, the Tax Tribunal, clearly determined that Payment Systems services (VISA, AMEX, MasterCard) constitute a single supply, which fulfills the specific and essential characteristics of the transfer of money and is hence VAT Exempt.

The Tax Tribunal conclusions cancel the specific VAT assessment. Affected businesses must consider the implications of the judgment in their circumstances.

Background - Decision Overview

After a re-examination assessment, for years 2006-2011, the Tax Department assessed 19% reverse charge VAT on charges from VISA, MasterCard and AMEX, taking the position that such services received by the Bank constitute technical, isolated services of processing, authorization and clearing concerning credit cards, which are excluded from the exemption hence taxed.

Represented by EY, the Taxpayer appealed to the Tax

Tribunal, analyzing the position that such services were VAT exempt, constituting a single supply which fulfills the specific and essential characteristics of the VAT service of transfer of money. The legal position was supported on the basis of Cypriot and European law and case law, as well as on the final positions of courts and tax authorities of other European member states.

Impact on Businesses

Business involved in payments related services either as income or expense, should carefully review the impact of the Tax Tribunal decision on their affairs.

Affected businesses include:

· Banks and other Financial Institutions

· Merchant Acquirers (including of e-commerce)

· Electronic Money Institutions

· Payment Institutions

· Fintech

Action Plan Need

Businesses encouraged to evaluate the implications of the Decision and consider applicability in their VAT affairs. Some steps that worth examining:

- Step1: Identify the nature of expense/income from an operational angle.

- Step 2: Screen your contractual agreements to validate VAT implications.

- Step 3: Support your entity position on VAT technical grounds and pre-agree where needed treatment with authorities.

- Step 4: Consider applicability it under VAT audit and assess the need for dispute resolution/Controversy assistance.

Our Credentials – How we can help?

EY Cyprus having successfully handled the above appeal can offer tailored support to help companies navigate the impact of payment related VAT treatment. Our VAT Team consists of highly qualified experts in VAT on Financial Services and Tax Controversy.

If you think your company requires assistance, we can help with:

1. Reviewing from VAT perspective your agreements, invoices, terms, transaction regulations and course of dealing with counterparties

2. VAT examination handling & negotiation with authorities in determining treatment

3. Advisory with regards to assessments issued and representing your interests before administrative or judicial bodies

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.