Why is the regulation of payment services key to the financial transaction tax? ⚖️

Although tax law is not my main area of expertise, in recent months Peter and I have been working extensively on financial transaction tax issues. Not only because of the many exemptions that apply to our clients – financial institutions, but mainly because the terminology of the Financial Transaction Tax Act (FTT Act) refers extensively to a financial law regulation – the Payment Services Act (PSA).

Whether it is the financial transactions themselves or the recharged costs related to them, only those payment transactions that fall under payment services as defined by the ITA may be subject to tax. No matter how unfortunately the legislator, through a footnote, has narrowed the scope of payment services considered as financial transactions, it is interesting to note that the ZDFT only covers some of them – thanks to a parliamentary amendment within the amendment to the law.

In reality, a routine card payment by a customer to a merchant via a payment terminal may represent a complex structure of several payment transactions involving several payment institutions. Any transfer of funds that appears at first sight to be ‘ordinary’ may be carried out through different payment services – some of which are financial transactions for the purposes of the FTT, others not.

In its Q&A on the second Payment Services Directive (PSD2), the European Banking Association analysed dozens of business models where the boundary between different payment services was unclear. This is also evidence that there is a huge variety of business models in the payment services industry that combine different existing payment services. The extent to which the legislator reflected this reality when drafting the ZDFT remains questionable.

Therefore, in addition to the discussed topic of billed costs, it is also relevant in the assessment of the ZDFT which payment institution is used by the clients and what payment services it provides. When e-money or the business models of different financial institutions come into the picture, we have an interesting mix of exemptions from the ZDFT and the assessment of the payment services performed.

Roman Baranec
Highgate Law & Tax