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This happened to a friend of mine last Saturday in Firenze Santa Maria Novella train station.

In a rush to catch a train and low on Euros she approached the foreign exchange counter in the train station and asked for €150. The clerk processed the request and asked for her to put her UK bank card in the chip and pin reader. Instead of the reader saying €150 it said €180.xx. My friend questioned this as she thought she misheard or misunderstood the request. The clerk responded by saying this is the tax added on. She then thought she would receive €180 plus change but no, she only received €150.

In a rush to catch a train my friend just accepted the hit and got the €150 for €180 something. Can someone explain what this 'tax' is. I thought it might have been commission, but the clerk clearly said tax apparently.

I would have assumed any 'fee' was attached to the currency conversion rate, not an additional 'tax' or 'currency exchange fee' on top of the transaction

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    Why on earth would someone not use an ATM instead?! – JonathanReez♦ May 3 '17 at 15:02
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    You're preaching to the choir @JonathanReez I have explained the benefits time and time again but my friend does not listen. – davidb May 3 '17 at 15:06
  • 20% fee is quite usual for exchange counters. If she likes to pay more, nothing you can do about it. – Aganju May 3 '17 at 23:42
  • Error #1 was not using an ATM, and Error #2 is the there was probably a ticket machine or clerk who would use the bank card directly without need to obtain cash. – Andrew Lazarus May 3 '17 at 23:51
  • @AndrewLazarus The cash wasn't to buy a train ticket...I am not asking to point out the errors, I am asking what the 'tax' was on the transaction. – davidb May 4 '17 at 7:41
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While there might be a 'tax', the bulk of that is the 'currency exchange fee'.

That is how the currency exchange business gets paid. The transaction was €150 cash + €30.xx markup. The markup possibly consisting of 1) the unfavorable exchange rate, 2) commission, 3) merchant fees for using a debit/credit card 4) local tax.

The agent may have said 'tax' because it's easier to express and understand than commission. Though it is possible they use the word 'tax' to make it appear mandatory while a commission is something optional or negotiable.

There is nothing unusual about what happened. To note, you will almost always get a better deal from a random ATM then a currency exchange desk.

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    "That is how the currency exchange business gets paid" I don't think that's 100% true, generally they're "paid" by "selling" in a different rate than "buying", thus making money on spread. In Poland and several other countries I never paid any fee in my life. – Kuba May 3 '17 at 15:05
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    I would have assumed the 'fee' was attached to the currency conversion rate, not an additional 'tax' or 'currency exchange fee' on top of the transaction. – davidb May 3 '17 at 15:07
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    @Kuba Unless specifically prohibited, the 'fee' is how they get paid. Their operation is likely too small to meaningfully benefit from arbitrage. – Johns-305 May 3 '17 at 15:09
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    @davidb Just because the agent said 'tax' doesn't mean it's really a Tax. A 30% markup is definitely a commission or fee. – Johns-305 May 3 '17 at 15:12
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    @Johns-305 then I think it depends on country, because in Poland never in my life I paid any fee / tax. – Kuba May 3 '17 at 16:18

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