Payment Services Remain VAT Exempt in Finland — Supreme Administrative Court Clarifies Scope of the Exemption

Summary

The Finnish Supreme Administrative Court (KHO) has confirmed that certain regulated payment services qualify for the VAT exemption applicable to financial transactions under the Finnish VAT Act and Article 135(1)(d) of the EU VAT Directive. The judgment clarifies that the exemption depends on the substance of the service performed, rather than its contractual description or the identity of the service provider. Where a provider carries out functions that directly execute or facilitate the transfer of funds and alter the legal and financial positions of the parties involved, the services may fall within the scope of the VAT exemption.
The decision reinforces the established CJEU principle that VAT exemptions for financial services must be interpreted strictly while recognising the essential characteristics of payment transactions. Businesses supplying payment-related services should therefore assess whether their activities merely provide technical or administrative support—which generally remains taxable—or whether they perform essential functions that constitute exempt payment transactions. The ruling provides greater legal certainty for payment service providers, fintech businesses, and financial institutions operating in Finland.
The judgment also has practical implications for VAT recovery and pricing models within the financial sector. Services qualifying for the exemption generally do not attract output VAT, but providers may consequently face restrictions on recovering input VAT incurred on related costs. Businesses should therefore review their contractual arrangements and service descriptions to ensure that the VAT treatment accurately reflects the nature of the services supplied and aligns with both Finnish legislation and EU case law.

Article

The Finnish Supreme Administrative Court has clarified the scope of the VAT exemption for payment services, confirming that the decisive factor is the actual function performed rather than the contractual form of the service. By focusing on whether the supplier carries out the essential elements of a payment transaction, the judgment aligns Finnish practice with the case law of the Court of Justice of the European Union and provides important guidance for financial institutions and payment service providers when determining the VAT treatment of their services.