VATFIN2830 - Money (including transfer of money) and related services: securities for money, credit guarantees and related services: what is a credit guarantee?
A credit guarantee is a security for money whereby the guarantor continues the repayments of a particular debt in the event that a third party is unable to do so because of a specified cause. For example, a financial institution may issue a credit guarantee to an exporter of goods or services against non-payment by the importer.
»Ê¹ÚÌåÓýapp ECJ case Velvet & Steel Immobilien und Handels GmbH (C-455/05) held that Article 135 1(c) of the EC Directive 2006/112 must be interpreted as meaning that the concept of assumption of obligations excludes from the scope of that provision obligations which are non-pecuniary, such as the obligation to renovate a property.
Velvet & Steel contracted to assume responsibility for the vendorsâ€� obligation to renovate buildings as well as for rent guarantee in return for part of the purchase price of the buildings. »Ê¹ÚÌåÓýapp judgment stated that the transactions set out in Article 135 1(a) to (g) relate as a whole, to the sphere of financial transactions. It concluded that the assumption of the obligation to renovate property was not a financial service that fell within this sphere so the exemption in Article 135 1(c) could not apply.