Interchange fees between banks

by Maria Ström & Victor Elovsson


People in different floors

The Supreme Administrative Court concluded in HFD 2022 not. 1 that a “billing credit” deducted on Amex card transactions was considered a taxable supply of service. Thus, the Supreme Administrative Court took a different position than the Swedish Tax Agency, which had considered that the “billing credit” constituted a split of costs between the parties rather than a taxable supply.

In the ruling from the Supreme Administrative Court (“HFD”), the Swedish branch of American Express Europe, which issues American Express cards in Sweden, applied for an advance tax ruling to find out how a specific type of transaction within their business model should be handled in terms of VAT. It was described that a card transaction is initiated when a cardholder uses a card to pay for goods or services. An amount corresponding to the price of a purchased product or service (the “Nominal Amount”) is then transferred through a chain of different parties. A “redeemer” (generally a company within the American Express group) transfers the Nominal Amount, less a deduction for fees, to the seller of the product or service, while the network operator (a U.S. resident American Express company) transfers the Nominal Amount to the redeemer, less a deduction for fees. Lastly, the Swedish branch transfers the Nominal Amount to the network operator. Hence, the Swedish branch is the last link in the chain to transfer the Nominal Amount and demand payment from the cardholder. For its services, i.e., the transfer of the Nominal Amount, the Swedish branch receives a compensation called “billing credit” from the network operator, which is deducted from the Nominal Amount.

While the Swedish Tax Agency considered the “billing credit” to be a compensation for the costs that arose in the Swedish branch's operations as a card issuer, HFD held that, according to the agreement between the Swedish branch and the network operator, the network operator would compensate the Swedish branch with the “billing credit” when an amount corresponding to the Nominal Amount was transferred from the Swedish branch. The performances were thereby considered conditional on the execution of each other, and they had such a connection to one another that the “billing credit” was considered a taxable supply of service.