The VAT treatment of negotiation services has long been explicitly dealt with in EU VAT legislation but has never been put on a firm statutory footing in Ireland. It is, therefore, helpful that the Revenue Commissioners have now published guidance on the VAT treatment of negotiation services in respect of financial services (the "Guidance").   The Guidance is of particular relevance to financial services clients receiving or offering distribution and arranger services in relation to shares and securities.

Article 135 of the VAT Sixth Directive sets out the type of financial services that EU Member States are entitled to treat as VAT exempt.  Article 135 covers many of the typical VAT exempt financial services, including transactions in payments, credit, debt, securities and shares.  The VAT Sixth Directive explicitly includes reference to "negotiation" with respect to those instruments and services. 

The Irish equivalent of the financial services exemptions is found in Schedule 1, Part 2 of the Value-Added Tax Consolidation Act 2010.  Schedule 1 includes the same general exemptions for transactions in payments, credit, debt, securities and shares etc but the reference to "negotiation" with respect to those services is absent, other than in relation to the giving and negotiation of credit.  Instead, the Irish legislation attempts to cover exempt negotiation services in respect of financial services through paragraph 7 of Schedule 1, Part 2 which exempts the supply of "agency services" relating to various financial services specified in paragraph 6.

It has long been understood by practitioners that agency services are synonymous with negotiation services.  Historically, there was no published Revenue guidance on the point and practitioners often looked to the HMRC guidance on exempt intermediary services for comfort. 

The exemption for negotiation is now explicitly acknowledged in the Guidance which refers, in a number of locations, to "negotiation or agency" services.  The Guidance also sets out certain conditions which must be met in order for a service to be treated as negotiation or agency services.  Those conditions are taken from ECJ caselaw.  The Guidance makes it clear that it is not sufficient to label a service as an agency or negotiation service in order for that service to qualify for exemption from VAT.  Instead, the Guidance requires that:

• The clear purpose of the service must be to do all that is necessary in order for two parties to enter into a contract without the person acting in an agency or intermediary capacity having any interest of their own in terms of that contract.
• The service must amount to something other than the provision of contractual services typically undertaken by the parties to such contracts and must amount to more than delegation or sub-contracting of certain clerical formalities relating to the contract.

The Guidance also provides additional commentary on specific services, including negotiation in stocks, shares, debentures, and other securities, negotiation in payments, negotiation in debts and negotiating credit.

The Guidance is particularly helpful given the changes made in Finance Act (No.2) 2023 (the "Finance Act").  Previously, paragraph 6(1)(a) of Schedule 1, Part 2 exempted financial services that consisted of "issuing, transferring or otherwise dealing in stocks, shares, debentures and other securities (other than documents establishing title to goods)".  The Finance Act deleted reference to "issuing" from that section although paragraph 6(1)(b) continues to reference arranging for, or underwriting, an issue of stocks, shares, debentures and other securities.  The Notes for Guidance to the Finance Act states that the reason for the deletion is because issuing shares is already outside the scope of VAT and that it was, therefore, incorrect to reference the issuing of shares as exempt.

The Guidance reiterates this position in stating that the issue of shares is not a supply for VAT purposes.  Helpfully, it goes on to state that the supply of agency or negotiation services in respect of arranging for a share issue does constitute VAT exempt agency or negotiation services.  This should be of some comfort to financial services clients receiving or offering distribution and arranger services in relation to shares and securities.

Service providers and recipients of services from outside Ireland should continue to give careful consideration to the nature of services they are providing or receiving and whether the VAT treatment applied is consistent with the Guidance and conditions set out therein.