Credit intermediary services in the absence of authority to conclude contracts

Factual Background: Credit brokerage without authority to conclude contracts

The Portuguese company Versãofast is active in the credit intermediary business. It treated its services in this regard as VAT-exempt negotiations of credit in accordance with Art. 135 (1) (b) of the VAT Directive – with one exception: For its services for Caixa Geral de Dépositos, S. A. (CGD), it charged VAT and claimed input VAT deduction on the supplies received for this purpose, resulting in an input VAT surplus. The services provided to CGB consisted of the following:

• Proactive search for potential customers
• Provision of bank brochures
• Supporting potential customers in compiling the necessary documents
• Submission of the request for quotation as well as receipt and transmission of the bank's response
• Preparation of comparative overviews of the terms and conditions of various banks and discussion with potential customers

The remuneration was based on a contingency fee model. Potential customers were free to decide whether and with which bank they wished to conclude a credit agreement.

Versãofast argued that it had no authority to conclude contracts on behalf of CGD and was not involved in the approval of credits. Its activities were limited to informing potential customers about the prospectuses published by CGD and the terms and conditions offered for mortgage loan agreements, and explaining them, whereby it was not permitted to recommend a specific real estate credit. It also did not evaluate the information obtained from customers, and the commissions received only compensated it for the acquisition of customers, not for the negotiation of credits.

The Portuguese court dealing with this case referred a question to the European Court (EC) for a preliminary ruling – since 1 October 2024, the EC has been responsible for preliminary rulings in the field of VAT instead of the ECJ.

Decision: the term "brokerage" is broadly defined

The court referred to previous ECJ case law on the concept of negotiation, which applies to the activity carried out by an intermediary who does not occupy the position of a party to a contract and whose activity amounts to something other than the provision of contractual services typically undertaken by such a party. The activity may consist, inter alia, in presenting the contracting party with the opportunity to conclude such a contract, in contacting the other party or in negotiating the details of the mutual services on behalf of and for the account of the customer. The purpose of the activity is therefore to do what is necessary for two parties to conclude a contract, without the intermediary having any interest of his own in the content of the contract.

It also follows from the case law that the terms of the credit agreement may be determined in advance and that the intermediary does not need to have the power to conclude the agreement. The decisive factor is that, in the present case, Versãofast's activities as a whole are aimed at doing what is necessary to enable a credit institution to conclude credit agreements with potential customers. The various language versions of Article 135 (1) (b) of the VAT Directive do not indicate anything to the contrary. It is true that the terms used in the Portuguese, French and English versions refer to “negotiation”. However, the terms used in German, Finnish, Swedish, Danish and Dutch mean "intermediation", which, according to common usage, refers to an activity intended to enable two persons to conclude a contract with each other. For this reason, it is also irrelevant that potential customers are free to decide whether and with which credit institution they conclude a credit agreement.

As a result, the plaintiff's services to CGD were also exempt from VAT and a corresponding input VAT deduction was not permitted.

Significance for Germany

§ 4 No. 8 letter a) UStG, like the German language version of Article 135 (1) (b) VAT Directive, uses the term “Vermittlung von Krediten”, which means "intermediation of credits" (not "negotiation"). The Federal Fiscal Court in Germany (BFH) has not yet decided how the term "intermediation" should be defined in relation to loans. However, there is a ruling from 30 October 2008 in which the term "intermediation" was discussed in relation to the brokering of shares in corporations and other associations, and which is likely to be transferable (file number V R 44/07). According to this ruling, intermediation can consist of providing evidence, establishing contact or negotiating, so it can be assumed that the BFH would have ruled on the Versãofas case in the same way as the EuG. The tax authorities have adopted this case law as a general definition of "intermediation services within the meaning of § 4 Nos. 8 and 11 of the UStG" in section 4.8.1 sentence 4 of the administrative guidelines to the German VAT Act (UStAE).

Author: Nadia Schulte