8 September 2025 • 2 minute read
Dutch Court of Appeal rules that outsourcing payment processing is covered by VAT exemption
The Court of Appeal in The Hague held that services outsourced by a financial institution may qualify for a VAT exemption under the relevant provisions, provided they perform essential and characteristic functions of payment transactions.
In this case, a financial institution had outsourced its payment processing to a third-party provider. This provider was responsible for processing payment orders, debiting and crediting accounts, and directly exchanging payment data with the relevant clearing and settlement mechanism (CSM). The Dutch tax authorities argued that these services were taxable, claiming they were merely administrative in nature, as the third party only relayed transaction batches to the CSM and altered contractual relationships between the bank and its clients.
The lower court agreed with the tax authorities, viewing the services as technical and administrative. However, the Court of Appeal took a different view, finding that the third party independently executed nearly all payment operations. These included approving transactions and debiting/crediting shadow accounts - actions that triggered legal and financial changes between the bank and its clients, even without direct involvement from the financial institution. As such, the Court concluded that the services qualified for the payment services VAT exemption.
Importantly, the Court emphasised that the third party did not require a banking license or direct contractual relationships with clients to benefit from the exemption. Acting on behalf of the financial institution, the provider was subject to oversight by Dutch and EU regulators such as the DNB and ECB. This regulatory scrutiny further supported the Court’s view that the services went beyond mere administrative support.
Key takeaway
Following this ruling, outsourced payment processing may still benefit from the VAT exemption. Crucially, the exemption can apply even if the outsourced provider does not perform the final settlement, as long as the services are essential and bring about legal and financial changes in the transaction process.