ING –Court of Appeal of England and Wales finds that the provision of non-peripheral services by a bank to its depositors transformed it into a financial supplier

Under the European VAT jurisprudence, a mere borrowing or share issuance by a company is not considered to be a supply by it, so that VAT on inputs relating to the borrowing or issuance are not denied on that ground as being in relation to the supply of a financial serviced (see BLP and Kretztechnik).

An ING company unsuccessfully argued that its activity of taking deposits from its customers should benefit from this jurisprudence. Arden LJ accepted the finding below that the services provided by ING to its depositors (including 24-hour access to their deposits through internet banking) were more than merely “peripheral” to the borrowing represented by the deposits. As it was engaged in an exempt banking business, its related inputs did not generate VAT deductions.

Although the BLP proposition, that a borrowing does not constitute a supply by the borrower to the lender, might seem obvious, this proposition does not appear to be accepted by CRA. The confusion stems in part from the inclusion in the financial services definition (which likely only becomes relevant once there is first a determination that there is a supply) of “borrowing” and the “issue … of a financial instrument.” (The VAT provisions are broadly similar. See also ETA s. 185(1).) The ING case may illustrate that, even if the narrow view of supply under the VAT jurisprudence were accepted in Canada, there are circumstances where a borrower nonetheless can be making a supply of a financial services to the lender if it provides related non-“peripheral” services that are in the financial services world.

Neal Armstrong. Summaries of ING Intermediate Holdings Ltd v HMRC, [2017] EWCA Civ 2111 under ETA s. 123(1) – supply, s. 153(1) and General Concepts – Substance.