Supreme Court Clarifies VAT Deduction Rules for Market Makers in Securities and Transfer Pricing Cases

 

• VAT recovery method clarified: The Dutch Supreme Court overturned the lower court and indicated that a turnover-based pro rata (default method) may be applied for a securities market maker, allowing remuneration to be determined based on the net trading result, by analogy with the ECJ First National Bank of Chicago case, rather than requiring an actual-use method.
• Broad evidence for customer location: The Court confirmed that taxpayers may use all available evidence, including reasonable estimates, to determine whether counterparties to securities transactions are established outside the EU, which is key for input VAT recovery on exempt financial services.
• Transfer pricing charges under scrutiny: The case was referred back to assess whether intragroup charges, including payments under a Residual Profit Split Method, constitute VAT-taxable supplies and therefore should be included in the pro rata calculation for input VAT recovery.

 

Source Deloitte

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Supreme Court Clarifies VAT Deduction Rules for Market Makers in Securities and Transfer Pricing Cases

• The Supreme Court clarified VAT deduction rules for market makers trading financial instruments, especially regarding input VAT recovery for mixed costs (PESM) when counterparties are both inside and outside the EU.
• The Court confirmed that the First National Bank of Chicago method for determining taxable amounts in foreign exchange transactions may also apply to securities transactions under similar circumstances.
• The Court allowed for flexible, reasonable estimates to determine the place of establishment of counterparties when individual identification is not possible, provided the data is accurate and reliable.
• The Court questioned whether transfer pricing payments from foreign group companies should be included as turnover for VAT recovery purposes and referred this issue for further analysis.
• Market makers should reassess their current PESM and allocation methods in light of this judgment.

Source: pwc.nl

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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