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Financial Services VAT AlertGlobal networklocal expertiseindividual service

In this editionBelgium VAT grouping

Finland Advisory services to Finnish investment

fund qualify for exemption

Germany Decree on non-full-payout leasing

contracts issued Place of supply of intermediary services

regarding options VAT exemption of outsourced bank

transfer services

Switzerland End of formalism

United Kingdom MBNA Europe Bank Limited and The

Commissioners for HM Revenue and Customs

issue 2006/11

EditorialWe are pleased to present you with the PricewaterhouseCoopers Financial Services VAT Alert containing the latest European VAT news in the sector. This Alert is intended as an easy tool for you to keep track of the ever changing VAT in the Financial Services Sector.

If you have any queries or need assistance, please contact us.

Frans Oomen (frans.oomen@nl.pwc.com)Wider Europe VAT Leader Financial Services

BelgiumVAT grouping

The Belgian Government agreed to introduce VAT grouping in Belgium as from 1 April 2007. This measure is one of a series of tax measures taken by the Belgian Government to make Belgium more attractive for business.

VAT grouping is one of the most advantageous principles in VAT legislation for the FS sector. From our Study for the EU Commission on the economic effects of the current VAT regime, we understand that VAT grouping is high on the shopping list of businesses in the FS sector and that the availability of VAT grouping is one of the most important VAT factors in choosing a business location.

Under the proposed new rules, taxable persons established in Belgium that are legally independent but who are closely bound to one another by financial, economic and organisational links can opt to form a group for VAT purposes. The conditions relating to the existence of financial, economic and organisational links are deemed to be met automatically in the case of subsidiaries in which the top holding has a direct holding of more than 50%. These subsidiaries must be included in the VAT group. Only where proof can be provided that there is no economic or organisational link can these subsidiaries be excluded from the VAT group.

PwC provided best practices, input and suggestions to the Belgian Government for making the legislation EU compliant and as business-friendly as possible while at the same time safeguarding audit ability and administrative manageability for the Belgian tax administration. In addition, we will provide input to the authorities for the drafting of the administrative guidelines clarifying among others the eligibility rules and the right to deduct VAT in accordance with the ECJ Case Law and the provisions of the Sixth Directive. All of this in support of the Belgian FS Industry Association.For more detailed information, please do not hesitate to contact:Ine Lejeune (+ 32 9 268 83 00)Inge Stuyver (+ 32 3 259 31 81)

FinlandAdvisory services to Finnish investment fund qual-ify for exemption

On 2 October, the Supreme Administrative Court ruled that advisory services provided by a Russian company to a Finnish investment fund management company were considered as VAT exempt.

The case concerned a Finnish special investment fund which invested in Russian companies. The management company of the fund was entitled to buy in management and advisory services. To help it make decisions about new investments in Russia, the management company purchased advisory services from a Russian consultancy company.

The Court in Finland referred to the Abbey National and Inscape Investment Funds case (C-169/04) and ruled that the services purchased by the Finnish management company formed a specific and essential part of the VAT exempt activities of the investment fund. Therefore, the purchase of the advisory services was not subject to reverse charge VAT in Finland.

Unfortunately, the Court did not include any detailed description of the services in its decision. Therefore, the decision still leaves open the question of the precise scope of the VAT exemption which applies to the management of a special investment fund in Finland.

For more detailed information, please do not hesitate to contact :Juha Laitinen (+358 9 2280 1409)

GermanyDecree on non-full-payout leasing contracts issued

On 20 June 2006 the Regional Tax Office of Frankfurt am Main issued a decree dealing with accounting of non-full-payout leasing contracts. The tax authorities state that the leased good has to be capitalized with the lessee in case the lessee is entitled to opt to purchase the leased good after the initial lease term by

contract. This means that for VAT purposes a supply of goods takes place and VAT on the whole amount of lease instalments becomes due at the beginning of the lease. This VAT treatment differs from the treatment of lease contracts frequently concluded in practice (e.g. car leasing) where the leasing good usually has to be capitalized with the lessor and, therefore, from a VAT perspective, a supply of services is provided.

We recommend that leasing companies should inspect their contracts and general leasing terms with respect to existing purchase options in order to avoid negative VAT consequences. However, there are also opportunities for structuring cross border contracts in order to avoid double taxation (e.g. financial leasing of movable property is generally deemed to be a supply of goods in Switzerland).

For more detailed information, please do not hesitate to contact: Sylvia Neubert (+49 69 9585 6235) Elmar Jaster (+49 221 2084 203)

GermanyPlace of supply of intermediary servicesregarding optionsFederal Fiscal Court (BFH), ruling dated 30 March 2006 - V R 19/02

In a case decided by the German Federal Fiscal Court (BFH), the German appellant contacted potential customers as agent of a British company regarding commodity, financial and currency options.

The BFH ruled that the British company was engaged in the VAT exempt trading of options and stated that the same VAT treatment should also apply to the respective intermediary services provided by the German agent. Regarding the definition of intermediary services for VAT purposes the BFH referred to the ECJ decision "CSC Financial Services Ltd." (C-235/00).

The BFH decided that the place of supply of the intermediary services rendered by the appellant has to be determined according to sec 3a (3) and (4) German VAT Act (Art. 9(2)(e) of the EC Sixth VAT Directive), i.e. where the recipient of the service has its place of business.

The Lower Fiscal Court had qualified the services provided by the British Company as consultancy services and relationship management, so that the intermediary services were not VAT exempt if provided in Germany. The BFH on the other hand still considered the services of the British company if rendered in Germany to be VAT exempt trading in options, regardless of whether or not the British company rendered advisory services to the potential investors.

For more detailed information, please do not hesitate to contact: Sylvia Neubert (+49 69 9585 6235) Marc von Ammon (+49 89 5790 6379)

GermanyVAT exemption of outsourced bank transfer servicesFederal Fiscal Court (BFH), ruling dated 13 July 2006 - V R 57/04

After two Lower Fiscal Courts decided quite differently about the VAT exemption of outsourced bank transfer services, it was the BFH´s turn to interpret the ECJ ruling "SDC".

The case concerned a group of local savings banks which formed a company for processing bank transfer forms on behalf of its members and other banks. This company (the service provider) scanned in the forms received, checked for missing or obviouslyincorrect data, made any necessary corrections and forwarded the file to the giro system data centre.

The BFH referred to the ECJ ruling "SDC" where it is stated that to fall within the exemption for transactions concerning transfers the services supplied must have the effect of transferring funds and entail changes of a legal and financial character.

The BFH rejected the argument of the Lower Fiscal Court that the responsibility of the service provider exceeded a mere physical or technical supply but extended to the specific, essential aspects of the transactions. According to the BFH the meretransforming of data from the bank transfer forms into data suitable to be used by the data centre is not sufficient. The responsibility of the service provider has to extend to making legal and financial changes.

The BFH rescinded the decision of the Lower Fiscal Court and remanded the case in order to determine in detail whether the preconditions for the VAT exemption were fulfilled.

The ruling shows that the BFH obviously tends to interpret the ECJ rulings regarding the VAT exemption of outsourced bank transfer services in a quite narrow way.

For more detailed information, please do not hesitate to contact: Sylvia Neubert (+49 69 9585 6235) Marc von Ammon (+49 89 5790 6379)

Switzerland End of formalism

The Swiss VAT Authorities have in the past been very formalistic and have repeatedly taxed services provided abroad because the invoices did not contain a detailed description of the services or a clear reference to the underlying contract.

Following political pressure, the Swiss government has enacted new rules prohibiting the VAT Authorities from levying VAT due to purely formalistic reasons provided it is obvious or can be proved that no loss of VAT has been suffered by the State. The VAT Authorities have now published their guidelines on how they intend to interpret the new rules.

The most important points are: Proof for zero-rated or VAT exempt transactions

can in principle be provided by means of invoices, contracts, accounting entries, correspondence.

Deduction of input VAT is possible even if some details that are required by law are missing on the invoice (such as VAT registration number, correct name and address of recipient of supply) provided the parties involved can be identified based on the information on the invoice.

A zero-rated export of goods can be proven by e.g. import documents from the country of destination

While all these changes may not seem spectacular,

they will in fact change the way the Swiss VAT Authorities have conducted audits as they will no longer focus on purely formalistic matters. Furthermore, the VAT Authorities have announced that they will apply these new rules to all pending procedures.

This change of attitude is very welcome and is good news indeed. However, we still recommend complying with the legal regulations for invoicing as the actual application of these rules by the inspectors of the Swiss VAT Authorities remains to be seen.

For more detailed information, please do not hesitate to contact:Tobias Meier Kern (+41 58 792 4369)

United KingdomMBNA Europe Bank Limited and The Commissioners for HM Revenue and Customs(CH/2006/APP/165, 325, 245, 324)

In an update to a previously reported securitisation case, this case centred around the VAT treatment of securitisation transactions carried out by the Taxpayer; the fairness of the special partial exemption method agreed in 1999; the validity of its subsequent withdrawal by HMRC; and whether the servicing fee received by the Taxpayer for servicing securitised accounts can be included in the numerator of an outputs based calculation.

The High Court considered that the assignment of receivables is not a supply for VAT purposes. Furthermore, in the context of a securitisation arrangement, residual inputs were consumed in servicing the securitised accounts and VAT recovery was therefore allowed through the partial exemption method.

The question of the extent to which the input tax is recoverable has been remitted back to the Tribunal.

For more detailed information, please do not hesitate to contact:Cathy Hargreaves (+44 20 7212 5575)Ossie Osman (+44 20 7212 5573)

Contact

AustriaChristine Sonnleitnertel: +43 1 50188-3630

BelgiumIne Lejeunetel: +32 9 268 8300

CyprusChrysilios Pelekanostel: +357 22 555280

Czech RepublicVaclav Patektel: +420 251 152 569

DenmarkJan Huusmann Christensen tel: +45 39 459 452

EstoniaAin Veidetel: +372 6 141 978

FinlandJuha Laitinentel: +35 89 228 01409

FranceStéphane Henriontel: +33 1 56574139

GermanySylvia Neuberttel: +49 69 958 56235

GreeceMary Psyllatel: +30 210 687 4444

HungaryTamas Locseitel: +36 14 619 358

IrelandJohn Fay tel: +35317048701

ItalyPier Luca Mazzatel: +39 02 6699 5732

LatviaZlata Elksnina-Zascirinskatel: +371 709 4514

LithuaniaKristina Bartusevicienetel: +370 5 2392 365

Luxembourg Michel Lambiontel: +352 494 848 3126

MaltaDavid A. Ferry tel:’+356 256 46712

The NetherlandsFrans Oomentel: +31 20 568 47 81

NorwayYngvar Engelstad Solheimtel: +47 95260657

PolandMarcin Chomiuktel: +48 225 234 760

PortugalMario Braztel: +351 21 7914 4053

RomaniaDiana Coroaba tel: +40 212 028 693

SlovakiaEva Fricovatel: +421 2 59 350 613

SloveniaCrtomir Borectel: +38 614 750 152

SpainMiguel Blascotel: +34 9 1568 4798

SwedenLars Henckeltel: +46 85 553 3326

SwitzerlandTobias Meier Kerntel: +41 58 792 43 69

United KingdomCathy Hargreaves tel: +44 207 212 5575

© 2006 PricewaterhouseCoopers. All rights reserved. Disclaimer. Clients receiving this Alert should take no action without first contacting their usual PricewaterhouseCoopers Indirect Tax Advisor.

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