In practice, there may be situations where brokering services of financial-banking negotiation activities receive a tax-erroneous treatment, falling within the category of VAT exempt services without right of deduction. These situations are most often due to contractual provisions that are formulated in such a way that they do not detail the nature of the services that would in essence qualify as data collection and processing services, marketing, research services, etc.

Legal Provisions

From the point of view of the exemption from VAT, according to Article 292, paragraph (2), section a) of the Tax Code, the following financial-banking operations are exempt from VAT:

„1. granting and negotiating credits, as well as managing the credits by the person granting them;;

2. the negotiation of credit guarantees or of other guarantees or any operations with such guarantees as well as the administration of credit guarantees by the person granting the credit;

3. transactions, including negotiation, regarding deposit accounts or current accounts, payments, transfers, claims, checks and other negotiable instruments, excluding the recovery of claims;

4. tranzacţii, inclusiv negocierea, privind valuta, bancnotele şi monedele utilizate ca mijloc legal de plată, cu excepţia obiectelor de colecţie, şi anume monede de aur, argint sau din alt metal ori bancnote care nu sunt utilizate în mod normal ca mijloc legal de plată sau monede de interes numismatic;

5. transactions, including the negotiation of currency, banknotes and coins used as legal payment method except for collectors’ items, namely gold, silver or other coins, or banknotes that are not normally used as legal payment method or coins of numismatic interest;

6. the management of special investment funds;”

In order to clarify the notion of “negotiation in financial-banking operations”, the Methodological Rules related to the Tax Code state that the negotiation in financial-banking operations is „ensuring all necessary steps for the two parties directly involved, namely the client and the financial-banking services provider, to enter into a contractual relationship. Simply collecting, processing data and delivering results is not a negotiation in financial-banking operations, as is also clear from the European Court of Justice’s ruling in Case C235 / 2000 CSC”.

In this respect, according to the Decision of the Court of Justice of the European Union C-235/2000 CSC, the following issues need to be considered regarding the negotiation of financial instruments:

  • the purpose of the negotiation is to do everything necessary for the two parties involved to conclude a contract without the negotiator having a personal interest in the contractual terms;
  • Simply collecting, processing data and delivering the result is not negotiation.

At the same time, the Methodological Rules stipulate that “the outsourced services related to the operations provided under Article 292, paragraph (2), section (a) of the Tax Code, such as marketing, research, legal services, accounting and / or audit services, do not fall within the scope of tax-exempt transactions”.

Practical Aspects

In practice, it is very important to determine correctly the type of service provided on the basis of the contractual provisions signed with the partners.

There are situations in which companies place the services provided in the category of brokerage services of the financial-banking negotiation activities, although at a careful analysis of the contractual provisions the services provided may in essence be services of promotion of the financial-banking products and services and / or services of collection, data processing and transmission of results.

Thus, companies misappropriate these services as VAT exempt under the Tax Code.

In view of the applicability of the VAT exemption for financial-banking negotiations, a case-by-case analysis is required. In this review, in addition to revising the provisions on the object of the contract, the obligations of the parties and the working procedure to identify the operational flow of the transaction, it is also important to analyze the contractual provisions on remuneration.

We draw attention to the fact that if based on the contractual provisions the provider company is remunerated irrespective of the result of the activity, namely regardless of whether or not the credit file is approved as a result of the provided services, the services performed are not VAT exempt financial-banking negotiaton services according to the provisions of the Tax Code.

Therefore, in the case of contracts concluded if the provisions on remuneration are set so that the providing company is remunerated should the outcome of the activity is concretized by the approval of a credit file, the VAT exemption provisions are applicable.

In conclusion, it is necessary for each contractual agreement to clearly state the factual situation and the way in which the collaboration takes place, so as to eliminate the risk of applying an incorrect VAT scheme which could lead (in the case of a Romanian provider) to the establishment of additional VAT amounts and additional obligations.
Article published firstly on Avocatnet.ro.