SPAIN - New criteria for applying the VAT exemption to Composite Financial Services
The Spanish General Directorate of Taxation (GDT) recently issued a binding ruling regarding financial services rendered by banks located in Spain. In the ruling, the GDT reconsidered how financial services that include advisory services and the reception, transmission, and execution of investment orders are taxed from a VAT perspective, given the Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (MiFID II Directive).
The GDT responded to the following questions from a bank that provides advisory, reception, transmission, and execution of investment orders:
- Are investment advisory services independent from services related to the reception, transmission, and execution of investment orders for purposes of VAT?
- If so, how should each type of service be taxed for VAT?
The GDT previously considered investment advisory services and the reception, transmission, and execution of investment orders to be a single operation for purposes of VAT.
Given the MiFID II Directive, however, GDT is now of the view that investment advisory services must be identified separately. The Directive differentiates this type of service from the others so that bank customers who receive such services are duly informed and protected. As a result, the GDT considers investment advisory services as distinct services and so they should be taxed separately. Furthermore, the GDT takes the position that the investment advisory services are subject to VAT (in other words, they are not exempt).
The GDT followed the judgment of the Court of Justice of the European Union (CJEU) of 19 July 2012 in Finanzamt Frankfurt am Main V-Höchst v. Deutsche Bank AG. In that case, the Court established that while the purchase and sale of assets should be exempt, the analysis applied in that case does not apply with respect to services for purposes of the financial services exemption.
The fact that a financial institution charges an annual fixed commission of 0% for its advisory services is relevant from a VAT perspective. Though the commission is 0%, because these services are subject to VAT, the services are deemed a VAT self-consumption.
To sum up, the GDT concluded that, on one hand, the investment advisory services are a provision of a service themselves and such services are not VAT exempt. If these services are provided at no cost to the customer, they are to be treated as a service that is self-consumed. On the other hand, service that consists of the reception, transmission, and execution of investment orders continue to be deemed VAT exempt.