On the 28th of July 2011, the European Court of Justice (“ECJ”) has issued its decision on the VAT treatment of SWIFT services.
Swift services are offered by the Society for Worldwide Interbank Financial Telecommunications (SWIFT SC) are considered as electronic messaging services which are intended to transmit information between financial institutions.
SWIFT services are electronic messaging services, used in international payment transactions and securities settlements which are intended to transmit information between financial institutions.
In accordance with the ECJ’s decision, SWIFT services have only a technical nature and do not fulfill the specific and essential characteristics of financial services and thus they are not VAT exempt.
The Cypriot VAT Authorities have issued a VAT circular (Circular156) for SWIFT services which clarifies that:
- When a financial institution acquires/receives SWIFT services has an obligation to account for VAT using the reverse charge procedures. Input VAT can be claimed based on the basic rules applicable for input VAT recovery.
- When the financial institutions supply these services to their clients they are considered as part of the main transaction of financial services (e.g. transfer of money). These services are exempt fromVAT.
- The above apply as from 1/2/2002. Due to the broad use of SWIFT services, this decision has a significant impact in the financial market. Exposure arises for the financial institutions which did not assess VAT on SWIFT services in the past (i.e. as from 1/2/2002).