The Revenue Commissioners have issued guidance which sets out the VAT treatment of transactions concerning the transfer of money.
Transactions are defined according to the purpose and nature of the service provided and not according to the person supplying or receiving the service.
The principles that need to be considered when determining if a service qualifies for exemption are as follows:
- Exemption can only relate to transactions which form a distinct whole, fulfilling in effect the specific, essential functions of such transfers.
- An exempted service must be distinguished from the supply of a mere physical or technical service.
- A transfer is a transaction consisting in the execution of an order for the transfer of a sum of money from one bank account to another.
- A transfer is characterised by the fact that it involves a change in the legal and financial relationship existing, on the one hand, between the person giving the order and the recipient and, on the other, between those parties and their respective banks; and in some cases, between those banks.
- The transaction which produces the change is solely the transfer of funds between accounts, irrespective of its cause.
- The mere fact that a service is essential for completing an exempt transaction does not warrant the conclusion that the service is exempt
Status of the Supplier
When considering whether a service qualifies for exemption, the nature of the person supplying the service is not relevant (i.e. the supplier does not have to be a regulated financial institution). It is the nature of the service being supplied that needs to be considered.
Means by which the service is supplied
The means by which the service is supplied e.g. electronically or manually is not a decisive factor when considering the application of the exemption. Again it is the precise nature of the service being supplied that will determine the VAT treatment.
Physical or Technical Services
Where a supplier provides the infrastructure that facilitates the transfer of funds, those supplies cannot qualify for VAT exemption unless they themselves fulfill the specific and essential function of a transfer, in particular creating the change in the financial and legal relationship between the parties.
Charges for Using Certain Payment Methods
Where a supplier supplies goods or services to a customer and charges an additional fee to accept payment via a specified method, e.g. credit card, this charge is not independent from the supply of goods or services and cannot qualify for VAT exemption.
The receipt of a payment and the handling of that payment are intrinsically linked to any supply of goods or services provided for consideration. It is inherent in such a supply that the provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the goods or services supplied.