Financial Services and the VAT Exemption of Transactions with Financial Instruments – Does the End Justify the Means?
Financial Services and the VAT Exemption of Transactions with Financial Instruments – Does the End Justify the Means?

Summary/Abstract: The value‑added tax represents one of the pivotal sources of income for the EU budget. As a general rule, Member States redirect a portion of the VAT collected amounting up to 0,3% to the European budget. Depending on the gross national income of the Member State, the exact amount can vary from country to country, as the VAT base for each country is also dependent on each country’s GNI. The concept of ‘financial services’ in the VAT system is a broad topic which deserves a plethora of discussions. In this topic the focus will be on transactions with shares, which is regulated by Article 135 (1) let. f) of the VAT Directive. In the latest decade, tax payers have become more and more interested in what stock exchanges and transactions with shares have to offer. In 2022 alone, shares trading has reached a value of 104.29 trillion euros[3], which indicates that there is a growing trend in relying on this source of income. Despite their profitability, the VAT Directive exempts these transactions from VAT. We will first outline the generalities of financial services, focusing on their taxonomy and utility (I) and the value‑added tax and its exemptions (II). Then, we will focus on financial services in the VAT Directive, discussing the rationale behind their exemption from VAT (III) and their interpretation based on the European Court of Justice’s case law (IV). Finally, we will reach a conclusion, whether this exemption is justified in our current socioeconomic climate and whether the European Court of Justice’s approach is pragmatic or if it is too safe.

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