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March 26, 2021

Cyprus Tax Tribunal rules card payment systems services are VAT exempt

Executive summary

On 2 March 2021, the Cyprus Tax Tribunal issued its Decision in the long-anticipated banking case on the value-added tax (VAT) treatment of payment systems services. The taxpayer was represented by EY Cyprus.

In its comprehensive Decision, the Tax Tribunal held 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 therefore VAT exempt.

The Tax Tribunal conclusions nullified the specific VAT assessment. Affected businesses should consider the implications of this judgment on their operations.

Detailed discussion

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

Represented by EY, the Taxpayer appealed the assessment to the Tax Tribunal. The Tax Tribunal through its analysis held that such services were VAT exempt, constituting a single supply which meets 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 Union (EU) law and case law, as well as on the final positions of courts and tax authorities of other EU Member States.

Impact on businesses

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

Affected businesses include:

  • Banks and other Financial Institutions
  • Merchant Acquirers (including of e-commerce)
  • Electronic Money Institutions
  • Payment Institutions
  • Fintech

Next steps

Businesses should evaluate the implications of the Decision and consider its applicability on their VAT operations. Business should consider taking steps to:

  • Identify the nature of expense/income from an operational angle
  • Screen contractual agreements to validate VAT implications
  • Support the entity’s position on VAT technical grounds and pre-agree with authorities, where required, on the potential treatment
  • Consider applicability if under VAT audit and assess the need for dispute resolution/controversy assistance

EY Cyprus, based on the above appeal, has the experience to assist companies in addressing the impact of payment-related VAT treatment. Specifically, the VAT team can assist with:

  • VAT reviews of agreements and related documentation
  • VAT examinations and discussions with the authorities on the appropriate VAT treatment
  • VAT controversy support


For additional information with respect to this Alert, please contact the following:

Ernst & Young Cyprus Limited, Indirect Tax, Nicosia


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