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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bookit Ltd v HM Revenue & Customs [2006] EWCA Civ 550 (11 May 2006)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/550.html
Cite as: [2006] STC 1367, [2006] EWCA Civ 550
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(THE VICE-CHANCELLOR)
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE SEDLEY
and
LADY JUSTICE ARDEN
____________________
| BOOKIT LIMITED |
Appellant/ Respondent |
|
| - and - |
||
| COMMISSIONERS OF HM REVENUE & CUSTOMS |
Respondents/Appellants |
____________________
Somerset House, Strand, London WC2R 1LB) for the Appellants
Mr Jonathan Peacock QC (instructed by Deloitte & Touche LLP, 180 Strand, London WC2R 1BL) for the Respondent
Hearing date: 13 March 2006
____________________
Crown Copyright ©
- This is an appeal from an order made on 28 July 2005 by the Vice-Chancellor on an appeal under section 11 of the Tribunals and Inquiries Act 1992 from decisions of the VAT and Duties Tribunal (Mr Theodore Wallace, chairman, and Mrs Lyneth Salisbury JP) dated 28 May and 7 December 2004. The tribunal had dismissed the appeal of Odeon Limited and Bookit Limited from the decision of the Commissioners of Customs & Excise, in a letter dated 18 September 2002, that the service which it provided to cinemagoers should be treated as a standard rated supply for the purposes of value added tax. Bookit's appeal to the High Court was allowed. The Commissioners (now the Commissioners of HM Revenue & Customs) appeal to this Court with permission granted by Lord Justice Auld on 20 October 2005.
- Odeon Limited ("Odeon") is engaged, through subsidiaries, in the operation of cinemas nationwide. The issue which has given rise to the present appeal was first raised in a letter sent to Customs & Excise on 16 November 2001 by the finance director of Odeon:
- That letter was followed by some months of correspondence in the course of which Customs & Excise sought a more complete understanding of the arrangements proposed by Odeon. On 23 April 2002 Odeon sent to Customs & Excise a copy of a letter of understanding signed on 21 March 2002. On 13 June 2002 drafts of (i) a Data Services Agreement between Odeon and Bookit and (ii) a Merchant Services Agreement between Odeon, Bookit and Girobank plc were provided. It will be necessary to examine the terms of the letter of understanding and of those agreements (as executed) later in this judgment.
- The request for confirmation that the services provided by Bookit to customers said to be the processing of credit/debit card payments would be treated as an exempt supply for the purposes of value added tax led to the decision which was the subject of appeal to the tribunal. The Commissioners' decision was set out in a letter of 18 September 2002:
- Value added tax ("VAT") is charged on any supply of goods or services made in the United Kingdom which is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him section 4(1) of the Value Added Tax Act 1994 ("VATA 1994"). A taxable supply is a supply made in the United Kingdom other than an exempt supply section 4(2) VATA 1994. A supply of goods or services is an exempt supply if it is of a description for the time being specified in schedule 9 VATA 1994 section 31(1) VATA 1994. Group 5 (Finance) in schedule 9 VATA 1994 includes the two items on which Bookit relied before the tribunal:
- Group 5, schedule 9 VATA 1994 is supplemented by notes, by reference to which the items in that group are to be interpreted section 96(9) VATA 1994. Notes (5), (5A) and (5B) are in these terms:
- It is common ground that the provisions in schedule 9 VATA 1994 were enacted in order to implement the provisions in Article 13 of EC Council Directive 77/388 of 17 May 1977 on the harmonisation of legislation in Member States concerning turnover taxes ("the Sixth Directive"). Article 13B provides (so far as material):
- The letter of understanding, which purports to have been signed on 21 March 2002, set out the framework within which Bookit would supply services to Odeon in respect of cinema ticket sales. It is in these terms:
- It is not clear how the finance director of Odeon, who appears to have signed that letter of understanding on behalf of both Odeon and Bookit on 21 March 2002, was able to refer to "the Ticket Sales and Credit Card handling Agreement dated 29 March 2002"; but some explanation is provided in a subsequent letter from the finance director, dated 13 June 2002:
- What is clear, both from the letter of understanding and from that explanation, is that there was intended to be a distinction between the services that Bookit would provide in relation to "card transactions carried out in Odeon auditoriums" (Card Transactions) and the services that Bookit would provide in relation to advance telephone and internet bookings (Advanced Card Transactions). In relation to the former, Bookit was to provide Odeon with information, data processing services, credit management services and the maintenance of records. In relation to the latter, Bookit was to provide debit and credit card handling services. This distinction in functions is emphasised in the two agreements that were signed the Data Services Agreement and the Merchant Services Agreement.
- The Data Services Agreement between Odeon and Bookit is concerned, and only concerned, with transactions carried out on cinema premises. It was signed on 27 June 2002. The agreement provides for Bookit to provide Odeon with Data Handling Services in respect of Card Transactions at a fee to be calculated at the rate of 11 pence per completed transaction (exclusive of VAT). In that context, "Card Transaction" means "any payment by a credit or debit card at an Odeon Cinema with a credit or debit card"; and "Data Handling Services" means "the provision of information, data handling services, card handling services, credit management services and the maintenance of records". The VAT treatment of the supply of services by Bookit under that agreement is not in issue in these proceedings.
- The Merchant Services Agreement (or "MSA") between Girobank plc, Odeon and Bookit was signed on 15 August 2002. It recites:
- The MSA distinguishes between Advanced Card Transactions and Card Transactions:
- Clause 2 of the MSA (Operation and Duration) sets out the arrangements, as between Odeon and Bookit, for the purchase of Supplies. The clause distinguishes between Advanced Card Transactions and Card Transactions:
- Clause 3 (Girobank's Obligations) includes the following provisions (so far as material):
- Clause 4 (Merchant's Obligations) includes:
- Clause 12.4 of the MSA requires the "Merchant" meaning "Odeon and Bookit together, jointly and severally" - to check each Card Transaction or Advanced Card Transaction which does not require authorisation against any current card transaction decline and recovery listing or notice and to notify Girobank of any card appearing on it. Schedule 1 sets out the scale of charges payable by Bookit to Girobank. In particular, the schedule provides that it is the Merchant's responsibility to strip out unauthorised transactions below the Floor Limit; and provides for a higher charge to be paid to Girobank if that was not done. Schedule 2 sets out the Floor Limits and prescribes certain types of card which are not authorised for the purposes of the MSA.
- Bookit and Odeon appealed to the VAT and Duties Tribunal from the decision in the Commissioners' letter of 18 September 2002. The tribunal heard oral evidence from the finance director of Odeon (who was also a director and the secretary of Bookit), and from the contact centre operations manager of Bookit, at a hearing in December 2003. The tribunal released the first of two decisions ([2004] UKVAT V18626; [2004] V&DR 421) on 28 May 2004. In paragraphs 8 to 44 of that decision the tribunal made findings of fact. At paragraphs 45 to 61 they set out the contentions of the parties. In essence, it was submitted on behalf of Bookit that, in relation to Advanced Card Transactions, "Bookit acts as agent for Odeon in making the booking and selling the tickets and provides a distinct service of card handling to the customer paying for the tickets". The 50p fee charged by Bookit to the customer was consideration for the service which Bookit supplied to the customer as intermediary between the customer and Girobank. The supply by Bookit of that service was an exempt supply. It was submitted on behalf of the Commissioners, on the other hand, that on a proper analysis the services supplied by Bookit to the customer were not confined to card handling: they included the pre-booking of cinema seats. It was said that: "The commercial reality is that there is a single composite supply of advance booking services. This includes checking the availability of seats for the customer, taking the card details and transmitting them to Girobank, and notifying both the customer and Odeon that the seats are taken. The taking of the card details is part of the principal booking service". On that analysis the supply took its character from the predominant feature of the composite transaction the pre-booking of cinema seats and so was to be treated as standard rated.
- The tribunal set out their conclusions at paragraphs 62 to 90 of the first decision. They held (at paragraph 66) that "when accepting payment by card for a ticket Bookit is acting as agent for Odeon". Further, they accepted (at paragraph 69) that "when Bookit is finding out the customer's requirements and checking the availability of seats in accordance with those requirements, it is not . . . performing any service for a consideration for the customer". That led the tribunal to conclude (at paragraph 76) that:
- That left for consideration the issue whether the card handling services (taken alone, as the only element of supply) were exempt under group 5 of schedule 9 VATA 1994. As the tribunal put it: "The issue is therefore whether Bookit is also providing intermediary services to customers and acting in an intermediary capacity within item 5 when read with Notes (5) and (5A) or alternatively whether Bookit itself is making supplies to customers consisting of dealing with money within item 1". They directed themselves that it was necessary to focus upon the specific services provided by Bookit to customers for the 50p fee. They said this, at paragraph 81 of their decision:
- The tribunal identified paragraph (3) as the provision in article 13B(d) of the Sixth Directive which item 1 of group 5, schedule 9, VATA 1994 was intended to implement: "Here we are concerned with transactions concerning payments or transfers". They reminded themselves that, in CSC Financial Services Ltd v Customs and Excise Commissioners (Case C-235/00) [2001] ECR I-10237; [2002] STC 57; [2002] 1 WLR 2200, the Court of Justice had said, at paragraph 26, that transactions concerning transfers within Article 13B(d)(3) must have the effect of transferring funds and entail changes of a legal and financial character; and, at paragraph 32 that:
- The tribunal then considered whether Bookit was performing intermediary services within item 5. Had they been concerned only with the interpretation of the domestic statute, they would have held that Bookit was "bringing together' the customer wishing to use his card and the card issuer which is providing financial services as well as the customer and Girobank". But item 5 had to be interpreted with the Sixth Directive in mind; in particular, it was necessary to give to the words in the domestic statute a meaning consistent with that given to paragraph (3) in article 13B(d) by the Court of Justice in the CSC case. The Court of Justice had said this, at paragraph 39:
- Those conclusions would have led the tribunal to dismiss Bookit's appeal. But the tribunal were concerned that "The actual means of transmission of information between Bookit and Girobank was not clearly explained" by the evidence which was before them. On the basis that their decision was "only as good as the evidence on which it is based" the tribunal gave each party leave to adduce further evidence on that point.
- That led Bookit to adduce further evidence in the form of a statement by the finance director of Odeon, on which he was cross-examined at a hearing on 22 November 2004. Following that hearing the tribunal released a second decision ([2004] UKVAT V18856) in which (at paragraphs 2 to 9) they made further findings of fact. The significant findings were these:
- The tribunal reconsidered its earlier decision in the light of those further findings of fact. They accepted (at paragraph 10 of their second decision) that paragraphs 80 and 81 of the earlier decision required modification:
- Bookit appealed to the High Court. The appeal came before the Vice-Chancellor in July 2005. He summarised the underlying facts (as he saw them) at paragraph 5 of his judgment ([2005] EWHC 1689 (Ch); [2005] STC 1481):
- The Vice-Chancellor considered and analysed four 'key' authorities - Sparekassernes Datacenter v Skatteministeriet (Case C-2/95) [1997] STC 932; Commissioners for Customs & Excise v FDR [2000] STC 672; CSC Financial Services v Commissioners of Customs & Excise (Case C-235/00) [2002] STC 57; and Commissioners of Customs & Excise v BAA plc [2003] STC 35. It is, I think, sufficient (at this stage) to refer, first, to the following paragraph in the judgment of the Court of Justice in Sparekassernes Datacenter v Skatteministeriet ("SDC") ([1997] STC 932, 953):
- The Vice-Chancellor summarised the submissions advanced before him on behalf of the parties. He said this:
- It is pertinent to note that the Commissioners were no longer relying, before the Vice-Chancellor, on the reasoning on which they had based their decision in the letter of 18 September 2002 and which they had sought to uphold before the tribunal: that Bookit were making a single composite supply of advance booking services which took its character from the predominant feature - the pre-booking of cinema seats. The Commissioners must be taken to have accepted the tribunal's conclusion (at paragraph 76 of the first decision) that "the only supply by Bookit to the customer is of card handling services" - or (at the least) to have accepted that no appeal lay from that conclusion under section 11 of the 1992 Act.
- The Vice-Chancellor expressed his conclusions at paragraphs 47 to 57 of his judgment. At paragraph 47 he observed that the first step was to identify any relevant payment or transfer. He said this:
- At paragraph 53 of his judgment the Vice-Chancellor identified what he judged to be the flaw in the tribunal's reasoning:
- Having reached that conclusion for the reasons that he gave, the Vice-Chancellor found it unnecessary to consider the contentions founded on article 13B(d)(1) of the Sixth Directive or those based on items 2 and 5 of group 5, schedule 9 VATA 1994 which had been advanced on behalf of Bookit.
- The Commissioners appeal to this Court. The substantive ground amongst those set out in the appellants' notice is that the supplies made by Bookit to cinemagoers were not "transactions . . . concerning payments, transfers . . ." within paragraph (3) of article 13B(d) of the Sixth Directive. As developed in the skeleton argument filed on behalf of the Commissioners and in oral argument in this Court the challenge to the Vice-Chancellor's conclusion on that issue was put under two heads: (i) that the Vice-Chancellor was wrong to depart from the tribunal's finding that the actual components of the supply made by Bookit to the customer (or cinemagoer) were limited to the receipt and transmission of information and (ii) that, when properly identified by reference to its components, the supply did not fall within the exemption allowed by article 13B(d)(3). It is said that the Vice-Chancellor construed that exemption too widely.
- It is pointed out, correctly, on behalf of the Commissioners that the tribunal had made a finding, at paragraph 81 of their first decision, that:
- It is clear, reading the first and second decisions together, that the tribunal found that the supply by Bookit to the customer included the following components: (i) obtaining the card information with the necessary security information from the customer, (ii) transmitting that information to the card issuers, (iii) receiving the authorisation codes from the card issuers and (iv) transmitting the card information with the necessary security information and the card issuers' authorisation codes to Girobank. But the tribunal did not make a positive finding that the supply was limited to those components.
- The Vice-Chancellor pointed out that the effect of the supply by Bookit to the customer of services having the fourth of the components identified by the tribunal the transmission of the card information, the security information and the card issuers' authorisation codes to Girobank was that the price of the ticket and the card handling fee was transferred from the customer (in the case of a debit card transaction), or from the card issuer (in the case of a credit card transaction), to Bookit's account with Girobank. That is what clause 3.1.1.of the MSA required Girobank to do on receipt of the card transaction data. It was, I think, the tribunal's failure to appreciate that that was a necessary incident of the supply of services having the components which the tribunal had identified which led the Vice-Chancellor to observe, at paragraph [53] of his judgment, that "having admitted further evidence, [the tribunal] did not sufficiently revisit their earlier conclusion". In making that observation the Vice-Chancellor clearly had in mind the reason which the tribunal had given, at paragraph 12, of their second decision, for holding that the conclusion which they had reached in paragraph 85 of the first decision "that Bookit in transmitting on behalf of customers the required card information is [not] itself transferring funds or bringing about changes of a legal or financial character" remained unaltered. The reason given was that:
- In addressing the first head of challenge - that the Vice-Chancellor was wrong to depart from the tribunal's finding that the actual components of the supply made by Bookit to the customer (or cinemagoer) were limited to the receipt and transmission of information - the short question, as it seems to me, is whether the Vice-Chancellor was entitled to have regard to the fact that it was a necessary incident of the supply of services having the fourth of the components which the tribunal had identified that the price of the ticket was transferred to Bookit's account with Girobank. In my view that was a fact properly to be taken into account.
- In reaching that conclusion I reject the submission, advanced on behalf of the Commissioners, that the Vice-Chancellor trespassed upon the fact finding role of the tribunal. We were referred to the familiar passage in the speech of Viscount Radcliffe in Edwards (Inspector of Taxes) v Bairstow and another [1956] AC 14, 36 and to the observations of Lord Brightman in Furniss (Inspector of Taxes) v Dawson [1984] AC 474, 527G-528C; [1984] STC 153, 165-166. But this is not a case in which the judge departed from the findings of fact which the tribunal had made, or made additional findings of fact which the tribunal had declined to make. The fact that it was a necessary incident of the supply of services having the fourth of the components which the tribunal had identified that the price of the ticket was transferred to Bookit's account with Girobank is inherent in the findings of fact which the tribunal did make in their first decision that the mutual obligations of Girobank and Bookit were to be found in the MSA. In analysing the nature of the services supplied by Bookit to the customer in the light of the further evidence available to them at the date of the second decision - the tribunal failed to take that fact into account. That, as it seems to me, was an error of law which the Vice-Chancellor was entitled to correct.
- I turn, therefore, to the second head of challenge: that, when properly identified by reference to its components, the supply did not fall within the exemption allowed by article 13B(d)(3) of the Sixth Directive. In addressing that issue it is necessary to keep in mind the following matters: (i) that the services supplied by Bookit to the customer included the fourth of the components identified by the tribunal (the transmission of the card information, the security information and the card issuers' authorisation codes to Girobank); (ii) that it was a necessary incident of the supply of services having that component that the price of the ticket was transferred to Bookit's account with Girobank; and (iii) that the credit to Bookit's account was a payment or transfer for the purposes of article 13B(d)(3) of the directive. The only question, therefore, was whether a supply fell within the exemption for which article 13B(d)(3) provides: "transactions . . . concerning . . . payments [or] transfers".
- The Commissioners submit that the answer to the question is to be found in the judgment of the Court of Justice in the SDC case - Sparekassernes Datacenter v Skatteministeriet [1997] STC 932. As the Vice-Chancellor explained in his judgment, SDC was a Danish association which provided to its members a data-handling service comprising the execution of transfers, the provision of advice on and trade in securities and the management of deposits, purchase contracts and loans. The various components together made up the service which a bank or its customers wanted. SDC undertook no legal obligation to those customers and was remunerated only by the banks. The question was whether those services came within (inter alia) the exemption in Article 13B(d)(3).
- The Court of Justice began its consideration of that question with the following preliminary remarks:
- In his judgment, the Vice-Chancellor set out paragraphs 37 and 53 to 56 of the judgment of the Court of Justice in the SDC case. I have, myself, already rehearsed paragraph 53 earlier in this judgment. It is unnecessary for me to set out paragraphs 54 and 55. But the Commissioners rely, in particular, on paragraph 66 of the judgment in the SDC case (wrongly cited, in the skeleton argument filed on their behalf, as paragraph 64 of that judgment) and it is necessary that I set out that paragraph in the context in which it appears:
- It is said that the Vice-Chancellor erred in failing to ask himself whether the services supplied by Bookit to the customers "formed a distinct whole, as opposed to whether Bookit was doing something distinct from any other party"; and, more particularly, in failing to ask himself whether those services "fulfilled the essential functions of a service described in article [13B(d)(3)]". I am not persuaded that that submission can be sustained.
- It is made clear in paragraph 65 of the judgment of the Court of Justice in the SDC case that "the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which the element represents is exempt". It is for that reason, as it seems to me, that the conclusion reached by the tribunal in paragraph 85 of its first decision was correct on the basis of the facts which the tribunal had found at paragraph 81 of that decision, for the reason which they had given at paragraph 84. It is also made clear, at paragraph 66 of the judgment in the SDC case, that to attract the exemption the services supplied "must . . . have the effect of transferring funds and entail changes in the legal and financial situation". It was the failure to appreciate that the fourth component of the services which they had identified, in the light of further evidence, did have the effect of transferring funds and did entail changes in the legal and financial situation or, perhaps, the failure to appreciate that the transfers of funds which that component of the services provided by Bookit did not need to be a transfer of funds by Bookit itself which led the tribunal to err in the conclusion which they reached in paragraph 12 of their second decision. And, further, it is made clear, at paragraph 66 of the judgment in the SDC case, that services provided by a data-handling agency can attract the exemption. The question which is for the national court in each case is whether the services supplied by the data-handling agency are restricted to "a mere physical or technical supply [of information]" or whether the services extend to "specific, essential aspects of the transaction".
- It was because the fourth component of the service supplied by Bookit to the customer does have the effect that funds are transferred to Bookit's account with Girobank in accordance with the obligations of Girobank under clause 3.1.1.of the MSA that the Vice-Chancellor reached the conclusion that the exemption for which article 13B(d)(3) provides was available in the present case. In my view he was correct to do so.
- It was submitted on behalf of the Commissioners that the transfer of funds to the credit of Bookit's account with Girobank was a matter of no importance to the customer; and, in particular, that the customer was unlikely to be aware of and would probably be indifferent to whatever arrangements or obligations might exist between Bookit and Girobank under the MSA. I accept that the machinery by which payment would be effected is unlikely to have been in the mind of the customer when he requested and accepted services from Bookit. But, as it seems to me, there can be no doubt that, in requesting and accepting Bookit's services, the customer contemplated and intended that some payment would be made which would enable him, on his attendance at the cinema of his choice, to collect the tickets which he needed; and intended that Bookit would arrange for that. The services which Bookit supplied as identified by the tribunal did have the effect which the customer contemplated and intended that they would have. The fact that the customer was indifferent to the machinery by which that effect was achieved seems to me irrelevant. The relevant questions are (i) what services were supplied by Bookit to the customer and (ii) did those services attract the exemption for which article 13B(d)(3) provides. As I have said, I am of the view that the answers which the Vice-Chancellor gave to those questions were correct.
- I should add that, by a respondent's notice in respect of which an extension of time for filing is needed Bookit sought to uphold the Vice-Chancellor's order on additional grounds. In particular it is said that the Vice-Chancellor ought to have concluded that the second of the two payments which he identified in paragraph [47] of his judgment was, or was part of, an exempt supply; and ought to have concluded that Bookit could rely on item 5 in Group 5, schedule 9 VATA 1994 the provision of intermediary services. In the circumstances that I would hold that the Vice-Chancellor was correct to allow the appeal before him for the reasons which he gave, I do not find it necessary to address the issues which the respondent's notice seeks to raise.
- I would dismiss this appeal.
- I agree.
- I also agree
Lord Justice Chadwick :
The Commissioners' decision
"I am writing to inform you of a change to Odeon's business intended to take place from 1 January 2002 which will require us to register a new company for VAT. In addition, I should like your written confirmation that that we have understood the VAT implications arising from this change . . .
At present advanced booking income (telephone and internet booking) accounts for around 5% of Odeon's ticket sales. Until recently ticket sales have almost exclusively been made on a cinema by cinema basis. Within the next three years we expect advance booking income to increase at an exponential rate.
With this in mind we have decided to rationalise the way that advance bookings are handled through a separate company, Odeon Booking Company ('OBC') to manage these activities. OBC's main business activities will be as follows:
(i) developing and exploiting new routes to market such as interactive TV, WAP and maximising online booking;
(ii) charging customers a fee for processing credit and debit cards payments, and
(iii) obtaining income from telecoms providers that operate 0870 prefix premium rate booking services.
. . .
OBC will account for VAT on the income it receives from telecom companies as a payment of the 0870 prefix premium rate booking line. The company will also make standard rated supplies to Odeon Ltd comprising of services aimed at developing new routes to market and answering general public enquiries. OBC will also earn revenue by charging customers 50 pence per ticket for processing credit/debit card payments.
It is my understanding that the fee OBC will receive for accepting credit/debit card payments will be exempt from VAT under Item 5, Group 5, Schedule 9 VAT Act 1994. This accords with Business Brief 17/98 in which Customs state that where an agent acting for the supplier of goods or services, makes a charge to the customer for accepting payment, Customs consider that the charge is for the separate supply of an exempt service. OBC will as a result treat the booking fee as VAT exempt. We understand that as a consequence of this OBC will not be entitled to recover any VAT on the costs that are attributable to the supply of payment processing to the customer.
Can you please confirm in writing that our understanding is correct . . . ?"
Bookit Limited ("Bookit"), a subsidiary of Odeon, was the company chosen to fulfil the role which, as envisaged in that letter, would be taken by OBC.
"From the information provided in correspondence and enclosed agreements, it is apparent that Bookit are in fact providing a package of supplies to the customer, namely;
1. Checking availability of seats at requested screening;
2. Taking card details from customer and transmitting to Girobank for processing; and
3. Sending notification to Odeon's computer system that those seats are taken.
The great difficulty with a package of supplies is determining whether they should be regarded as single or multiple supplies, whether the package should be regarded as and if so, which part of the package is the predominant supply and what VAT liability should be attached to that predominant supply, or whether there are three separate supplies, each with their own VAT liability. Fortunately, a recent European Court of Justice case, Card Protection Plan, gave clearer guidelines on how to determine whether a supply should be regarded as single or multiple. The main focus was on determining the essential feature of a transaction and whether other aspects could be considered ancillary to it. Generally, something is considered ancillary if it is not an aim in its own right, but a better means of enjoying the main supply.
In applying this test to the services supplied by Bookit, it is apparent that the only reason a customer would contact Bookit is because they wish to reserve a seat at a particular cinema screening in advance by phone/website etc. Upon completion of the transaction, the customer has received those reserved seats and been charged a consideration of 50 pence per ticket. This consideration is in addition to the normal ticket price for admission, which, as you argue, is supplied by Odeon. It is possible to visit an Odeon cinema in person and purchase tickets in advance and, in these circumstances, Bookit are not involved in the transaction.
Odeon is thus providing admission to the cinema in its own right to the customer. Bookit are supplying a separate service to the customer for which they receive the 50p per ticket consideration. The essential nature of this service is of booking reserved seats to customers. The taking of the credit or debit card details is not an aim of the customer in itself, but part of the process of obtaining enjoyment of the reserved seat in the cinema. The principal service is thus the booking service and the taking of the credit card details is ancillary to this.
Conclusion
Bookit are making a single supply of cinema seat booking services to the customer. The consideration is the 50p booking fee paid by the customer. The booking fee does not feature in the zero rate, reduced rate or exempt schedules, and must therefore be regarded as a standard rated supply for VAT purposes. This letter constitutes a decision of the Commissioners. . . ."
The legislative provisions
"1 The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.
. . .
5 The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity."
In conjunction with item 5, Bookit relies not only on item 1 but also on item 2:
"2 The making of any advance or the granting of any credit."
"(5) For the purposes of item 5 'intermediary services' consist of bringing together, with a view to the provision of financial services
(a) persons who are or may be seeking to receive financial services, and
(b) persons who provide financial services,
together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services, but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities.
(5A) For the purposes of item 5 a person is 'acting in an intermediary capacity' wherever he is acting as an intermediary, or one of the intermediaries, between
(a) a person who provides financial services, and
(b) a person who is or may be seeking to receive financial services.
(5B) For the purposes of notes 5 and 5A "financial services" means the carrying out of any transaction falling within item 1, 2, 3, 4 or 6."
"13B Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
. . .
(d) the following transactions:
1. the granting and the negotiation of credit and the management of credit by the person granting it;
. . .
3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;
. . ."
The provisions of the Sixth Directive have direct effect and the equivalent provisions in VATA 1994 are to be construed in the light of the directive. It is common ground that, in the present context, the relevant items in group 5, schedule 9 VATA 1994 add nothing to, and subtract nothing from, article 13B(d) of the directive.
The letter of understanding
"1. This letter seeks to more fully set out the relationship between Odeon Limited (Odeon) and Bookit Limited (Bookit) as created by the Ticket Sales and Credit Card handling Agreement dated 29 March 2002.
2. Odeon is a company providing cinema services to members of the public. Bookit is a separate card handling company that develops and exploits new routes to market such as interactive TV, WAP and Internet.
3. Odeon sells cinema tickets to members of the public who will either book in advance (for example by telephone or internet) ('Advanced Card Transactions'), or will buy tickets at the relevant cinema before the performance ('Card Transactions').
4. Bookit has agreed with Odeon that it shall provide certain services in respect of the sales of cinema tickets.
5. It is understood that Bookit shall provide debit and credit card handling services in respect of Advanced Card Transactions, to Odeon's customers (as defined in the Agreement dated 29 March 2002).
6. It is further understood that Bookit shall additionally be responsible for the provision of information, data processing services, credit management services and the maintenance of records relating to Card Transactions data (but not Advanced Card Transactions) to Odeon.
7. Bookit and Odeon have agreed that their obligations in respect of cinema ticket sales as described above will be restricted to the terms of the Ticket Sales and Credit Card handling Agreement dated 29 March 2002."
"Ticket sales and credit card handling Agreement
At the time of entering into the 'Letter of Understanding' the agreement all parties had in mind for the provision of card handling services was to have been known as the 'Ticket Sales & Credit Card Handling Agreement'. Following negotiations this draft Agreement has since been superseded by the Merchant Services Agreement between Odeon Ltd, Bookit Ltd and Girobank plc and a Services Agreement between Bookit Ltd and Odeon Ltd. The Services Agreement provides greater detail on the contractual relationship between Bookit and Odeon for the provision of various data processing and storage services in relation to card transactions carried out in Odeon auditoriums. . . ."
The Data Services Agreement
The Merchant Services Agreement
"A. Girobank is a member of the MasterCard, Visa and Switch card schemes and is authorised under the regulations governing membership of these schemes to acquire data in respect of all MasterCard, Visa and Switch transactions from merchants who have signed a Girobank Merchant Agreement.
B. This Agreement sets out the terms on which Odeon Ltd will accept agreed financial plastic cards as a means of payment for cinema tickets, and on which card transactions will be authorised by and presented by Odeon to Bookit, and by Bookit to Girobank
C This Agreement will have effect from 1 February 2002."
"'Advanced Card Transaction' means any advance payment made by telephone, internet or other such media by the Cardholder for debit to the Cardholder's account in respect of the Card in question including, for the avoidance of doubt, both sums payable to Odeon for Supplies and any Handling Fee payable by the Cardholder to Bookit."
"'Card Transaction' means any payment (other than an Advanced Card Transaction) made by the Cardholder for debit to the Cardholder's account in respect of the Card in question including sums payable to Odeon for Supplies."
In that context, "Card" means "any valid financial plastic service card (including any debit or credit card) approved in writing in advance by Girobank from time to time save that nothing in this definition shall extend to cards which Odeon is unable to accept as payment"; and "Cardholder" means "the individual for whose use a Card has been issued at any time". "Supplies" means "the products and services offered by Odeon". "Handling Fee" is defined in clause 2.1.2.
"2.1 Girobank acknowledges that in relation to Advanced Card Transactions for the purchase of Supplies, the following arrangements shall apply between Odeon and Bookit
2.1.1 It shall be a condition of Odeon accepting Card payment for Advanced Card Transactions that the Cardholder agrees that Bookit will provide card-handling services to the Cardholder.
2.1.2 Bookit will be required to pay Odeon the amount due to Odeon from the Cardholder and require the Cardholder to pay Bookit a fee ('Handling Fee') for which Bookit shall accept payment by card.
2.1.3 Subject to paragraph 3.1.1 the price payable to Odeon by a Cardholder shall be an amount equivalent to the full price of the Supplies and the price payable to Bookit shall be the amount of the said Handling Fee.
2.1.4 In relation to each Advanced Card Transaction Girobank shall pay to Bookit under Clause 3.1.1 an amount equivalent to the aggregate of the Handling Fee due to Bookit and the amount due from the Cardholder to Odeon and payable by Bookit to Odeon, provided that such amount shall not in any case exceed the amount received by Girobank from the Card issuer for that Advanced Card Transaction."
2.2 Girobank acknowledges that in relation to Card Transactions for the purchase of Supplies, the following arrangements shall apply between Odeon and Bookit
2.2.1 In relation to each Card Transaction Odeon shall be required to make available to Bookit all data and Card Transaction Data to enable Bookit to make a supply of data processing services, maintenance of records and the supply of information services to Odeon.
2.2.2 In relation to each Card Transaction, Girobank shall pay to Bookit under Clause 3.1.1 an amount equivalent to the amount due from the Cardholder to Odeon and payable by Bookit to Odeon provided that such amount shall not in any case exceed the amount received by Girobank from the Card issuer for that Card Transaction
2.3 This Agreement shall commence on the date which appears at the head of the Agreement and shall continue in force until terminated in accordance with Clause 19."
"Card Transaction Data" means "details of a Card Transaction or Advanced Card Transaction in a form approved by Girobank".
"3.1 Girobank shall:
3.1.1 credit Bookit with the amount of all Card Transactions and Advanced Card Transactions effected by Odeon and in respect of which the relevant Card Transaction Data is presented to Girobank in accordance with the terms of this Agreement by crediting a Girobank account within the United Kingdom, nominated by Bookit or such other account as may be agreed between the parties; and
3.1.2 . . .
3.2 For the avoidance of doubt, Girobank's payments are made to Bookit for and on its own account and Girobank shall be under no obligation to make any payment to Odeon under this Clause 3.
. . .
3.6 Subject to Clause 3.7, Girobank shall use reasonable endeavours within one Banking day of receipt of a credit into Bookit's Girobank account under Clause 3.1.1, to transfer such credit by BACS transfer to any bank account within the United Kingdom nominated by Bookit, or such other account as may be agreed between the parties."
Clause 3.7 is not relevant in the present context.
"4.1 . . .
4.2 Bookit shall:
4.2.1 provide or procure that Girobank is provided with Card Transaction Data in respect of Transactions within the time period, if any, stipulated by Girobank;
4.2.2 ensure that Girobank is provided with Advanced Card Transaction Data in respect of Transactions within the time period, if any, stipulated by Girobank;
4.2.3 . . .
4.3 In accordance with the relevant procedure guide or Operating Manual, Odeon, or Bookit as applicable shall:
4.3.1 obtain authorisation from Girobank at the time for a Card Transaction if the Cardholder in question requires Supplies:-
4.3.1.1 the value of which (in the case of Advanced Card Transactions being the amount due to Odeon for the Supplies plus the amount due to Bookit as Handling Fee) is in excess of the Floor Limit; or
4.3.1.2 for an amount falling within a range notified by Girobank to Odeon from time to time.
. . ."
"Floor Limit" means "the total value of the sales (as notified to Odeon or varied from time to time by Girobank), including any Bookit Handling Fees, that Odeon may make to a Cardholder on any one occasion without the authorisation of Girobank, "Transactions" is not a defined term; but, plainly, it includes both Card Transactions and Advanced Card Transactions".
The Tribunal decisions
" . . . the only supply by Bookit to the customer is of card handling services and the submissions as to application of Card Protection Plan do not fall to be considered. The fact that the card handling services would if made by Odeon be ancillary to the sale of the tickets is not relevant since the card handling services were supplied by Bookit as principal".
"81. The actual components of the supply by Bookit to the customer are . . . limited to obtaining the card information with the necessary security information and transmitting this to Girobank. It does not even include any decision by Bookit whether to transmit that information, since in deciding whether to accept a payment by card not requiring authorisation from Girobank Bookit is not performing a service for the customer but is acting as agent for Odeon."
"32 The mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt."
And they observed (at paragraph 84 of their first decision) that:
"Logically transactions concerning payments must also entail changes of a legal and financial character. "
That led the tribunal to reject the submission that the supply fell within item 1 of Group 5. As they explained, at paragraph 85:
"85 The mere transmission of details to Girobank is essential to the completion of the transfer or payment by Girobank or the issuer, but that does not bring Bookit within item 1. The Appellant company has not satisfied us on the evidence that Bookit in transmitting on behalf of customers the required card information is itself transferring funds or bringing about changes of a legal and financial character. The transfers and financial changes are effected by Girobank and the payments are effected by the bank issuing the card."
"39 Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract."
Adopting, as the hallmark of negotiation, the need for some "distinct act of mediation", the tribunal rejected the submission that the supply of services by Bookit to customers fell within item 5 of Group 5, schedule 9, VATA 1994. They said this, at paragraph 90 of the first decision:
"90. In our judgment the services of the employees of Bookit in obtaining card information and transmitting the same to Girobank do not involve any act of mediation on behalf of the customer. The only matters mentioned in paragraph 39 of CDC (sic) which could be relevant are 'making contact with another party' here Girobank. However it does not seem to us that the mere transmission of card information suffices for 'negotiation' or it follows does such transmission come within 'intermediary services' in item 5."
[Note: Although the reference in the text of the tribunal's decision is to 'CDC', it is clear from the context that the tribunal intended to refer to paragraph 39 of the CSC case.]
"5. At 1.30am in the morning following the booking all Bookit's card transactions are batched together on Bookit's computer system. These batched transactions are then sorted down by reference to the separate card issuing banks ("the Card Issuers") and the details are transmitted on a secure line to each relevant Card Issuer to seek authorisation for the transactions.
6. The Card Issuers apply their own criteria and issue a code for each transaction denoting that it is authorised or rejected. When authorisation is refused the reason is notified, for example, 'wrong expiry date', 'out of funds', 'account closed' or 'card stolen'. If the reason is 'out of funds', Bookit may present the transaction again on the next day in the hope that this time there will be sufficient funds.
7. Bookit then collates the authorised transactions for transmission to Girobank delivering them in a single file by secure line still in the early hours of the morning following the booking. At this point no sums have been debited to customers' accounts with Card Issuers and no sum has been credited to Bookit.
8. Within 1 to 2 days Girobank credits Bookit with the sum for the tickets plus card handling fees debiting the Card issuer which in turn debits the account of the particular customer. In the event that the customer's bank rejects the debit, for example because the account is in overdraft, then Girobank re-credits the Card Issuer and charges back the debit to Bookit.
9. By obtaining authorisations from Card Issuers Bookit was able to negotiate lower charges by Girobank. . . ."
"10. . . . in that they omitted the obtaining by Bookit of authorisation from Card Issuers, which is separate from the prior authorisation required from Girobank where the specified limit or 'Floor Limit' is exceeded, and the transmission of the Card Issuers' authorisations to Girobank".
They noted (at paragraph 11) that it had been submitted on behalf of Bookit that:
"11. . . . the obtaining and transmitting of the authorisation is the key step by which a change of a legal and financial character (i.e. payment) is made, so bringing Bookit within item 1 [of Group 5]".
But they were not persuaded that that should lead them to alter the conclusion already reached in their earlier decision. As they put it (at paragraph 12 of their second decision):
"12. Our conclusion in paragraph 85 remains the same. While the transmission of the authorisation is an essential step, it does not itself bring about the payments or transfers. These are effected by Girobank."
The tribunal recorded that it had not been submitted that the additional material should affect their conclusion that Bookit was not performing intermediary services within item 5 of group 5.
The Vice-Chancellor's decision
"[5]. . . . There are four parties to the relevant series of events, namely (1) the Customer, (2) Girobank plc, (3) Bookit and (4) Odeon. In a typical transaction there are the following steps:
1. The Customer contacts Bookit by, say, telephone to ask if there are any seats available for a particular film in a particular cinema at a particular time on a particular day.
2. Bookit checks such availability with Odeon.
3. Odeon confirms to Bookit the availability of the required seats.
4. Bookit informs the Customer of such availability, the cost of the tickets and that it will make an additional charge for handling payment by debit or credit card.
5. Bookit takes the Customer's card details ('payment information') and verifies its right to use the card ("security information").
6. Bookit transmits the payment information and security information to Girobank.
7. Girobank processes the payment for the seats by means of the Customer's debit or credit card and credits Bookit with the aggregate of the price for the seats and the card handling charge.
8. Bookit confirms the purchase of the tickets to Odeon.
9. Bookit confirms the booking and payment to the Customer and informs him that the tickets may be collected from the relevant cinema.
10. The Customer collects the tickets.
11. Odeon admits the Customer to the relevant showing.
12. Bookit accounts to Odeon for the sums received for the tickets but retains the card handling charge.
13.Bookit pays Girobank for the services it provides out of the card handling charges it has retained."
It can be seen that points 5 and 6 of that summary take in the further findings of fact made by the tribunal in their second decision; in that "the security information" to which the Vice-Chancellor referred was the authorisation code obtained from the card issuer paragraph 6 of the tribunal's second decision. "Security information", in the Vice-Chancellor's summary, has a different meaning from "the necessary security information" in paragraph 81 of the tribunal's first decision.
"53. . . . it must be noted first of all that a transfer is a transaction consisting of the execution of an order for the transfer of a sum of money from one bank account to another. It is characterized in particular by the fact that it involves a change in the legal and financial situation existing between the person giving the order and the recipient and between those parties and their respective banks and, in some cases, between the banks. Moreover, the transaction which produces this change is solely the transfer of funds between accounts, irrespective of its cause. Thus, a transfer being only a means of transmitting funds, the functional aspects are decisive for the purpose of determining whether a transaction constitutes a transfer for the purposes of the Sixth Directive."
and, second, to two paragraphs in the judgment of Lord Justice Laws in this Court in Commissioners for Customs & Excise v FDR ("FDR") (2000] STC 672, 687):
"37 The value of these statements (which have, according to counsel's researches, never been doubted) is that they show that, if one leaves aside transfers in specie (of coin, goods or other property), a transfer of money means no more nor less than the entry of a credit in the payee's account and the entry of a corresponding debit in the payor's account. . . . The pro and con entries constitute the transfer. There is nothing else. . . .
38 If this reasoning is right it is, I think, very significant for a sensible and intelligent understanding of SDC. It demonstrates that what the Directive imports by the term "transfer" inheres in the notion of a 'change in the legal and financial situation' - an expression used in both paragraphs 53 and 66 "( )" - where that is a reference to the effects of the corresponding credit and debit entries in the accounts of the paying and receiving parties."
"[44]. Counsel for Bookit characterises the service rendered by Bookit to the Customer as the benefit of pre-payment for cinema tickets by remote means. He points out that the services provided to the Customer by both his card issuer and Girobank are exempt and contends that those provided by Bookit when properly regarded should be exempt too. He relies, in particular, on Article 13(B)(d)(3). He contends that the discharge of the debt due by the Customer to Odeon is a 'payment' or 'transfer', that the activities of Bookit in procuring it constituted either 'a transaction...concerning' or 'negotiation...concerning' such payment or transfer.
[45] Counsel for C/E disputes this analysis and conclusion. He contends that the components of the service supplied by Bookit to the Customer are limited to those to which the Tribunal referred in paragraph 81 of the First Decision with the addition of those mentioned in paragraph 10 of the Second Decision. They may, he submits, be summarised as:
'obtaining the card information with the necessary security information from the Customers and transmitting this to Girobank and/or the card issuers and transmitting Card Issuers' authorisations to Girobank'
Specifically he excepts card verification and the payment by Bookit to Odeon as being the actions of an agent performing his duty to his principal and not a part of the service provided by Bookit to the Customer.
[46] Counsel for C/E contends that the service when so understood consists of obtaining and transmitting information and nothing more. Bookit does not evaluate or process that information, Bookit does not itself give any authorisation, Bookit is not required to make any decision on behalf of the Customer or anyone else, Bookit does not negotiate anything or effect any payment or transfer. He contends that the Tribunal was right for the reasons they gave."
"[47] . . . A payment or transfer for the purpose of paragraph 3 [in article 13B(d) of the Sixth Directive] is the execution of an order to transfer a sum of money from one account to another so as to effect a change in the legal or financial situation. This is clearly established by the decision of the ECJ in SDC paragraph 53 and by the Court of Appeal in FDR paragraphs 37 and 38. In this case there are two payments or transfers, (1) the payment or transfer of the price of the ticket and the card handling fee from the Customer (or its card issuer in the case of a credit card) to the account of Bookit with Girobank (clause 3.1.1 MSA) and (2) the payment or transfer of the ticket price from Bookit's account with Girobank to the account of Odeon (clause 2.1.2 MSA). "
At paragraph 51 he rejected Bookit's claim in so far as it was based on the second of those payments:
"[51] . . . The payment by Bookit to Odeon was the necessary consequence of the fact that it was the agent of Odeon for the purpose of selling the cinema tickets."
But that could not be said of the first of the two payments the payment from the customer's account (in the case of a debit card) or the account of its card issuer (in the case of a credit card) to the account of Bookit with Girobank:
"[51] . . . As is emphasised in paragraph 3.2 MSA that payment was made to Bookit for and on its own account. It was a payment by or on behalf of the Customer. It did alter the legal and financial situation. The card handling services provided by Bookit to the Customer were more than technical or electronic assistance but were the essential preliminaries to any remote payment by the Customer being effected. They were not rendered as a party to the contract between the Customer and Odeon, nor as the sub-contractor of either of them. They were separately remunerated by the card handling fee paid by the Customer. They constituted activities distinct from those of any other party."
It followed, in the Vice-Chancellor's view, that the services provided by Bookit to the customer were properly to be regarded as "transactions ... concerning ... payments, transfers." It was unnecessary to decide whether or not the transactions were brought within that expression by reference to the word "negotiation". As he put it (at paragraph 55 of his judgment): "I share the Tribunal's doubt about negotiation".
"[53] In my judgment the Tribunal arrived at the wrong conclusion. They did so because, having admitted further evidence, they did not sufficiently revisit their earlier conclusion. In particular whilst they recognised that their conclusions in paragraphs 80 to 81 of the First Decision required some modification they did not spell it out. Similarly the conclusion set out in paragraph 12 of the Second Decision assumes that the question is whether Bookit effected the payments. I do not think it is so limited. The service Bookit provided to the Customer constituted a transaction concerning such a payment, it was separately remunerated and it was not performed as agent or subcontractor of the Customer, Odeon or Girobank. As such, in my judgment, it came within Article 13(B)(d)(3)."
Accordingly, he allowed the appeal.
This appeal
"The actual components of the supply by Bookit are . . . limited to obtaining the card information with the necessary security information and transmitting this to Girobank."
But it is clear that, in that context, "the necessary security information" does not include the authorisation code obtained from the card issuer. The information to which the tribunal intended to refer at paragraph 81 of their first decision was limited to "the customer's card number and details including postcode" (paragraph 80 of the first decision); although they may well have had in mind that the card expiry date and its security code and the customer's name and house number fell within that description (paragraph 2 of the second decision). What the tribunal did not have in mind at the date of the first decision was the obtaining and transmission of the card issuer's authorisation code. The evidence that Bookit obtained an authorisation code from the card issuer in respect of each transaction and transmitted that authorisation code to Girobank, was not then before the tribunal. This was recognised by the tribunal at paragraph 10 of the second decision:
"Paragraphs 80 and 81 [of the first decision] require modification in that they omitted the obtaining by Bookit of authorisation from Card Issuers . . . and the transmission of the Card Issuers' authorisations to Girobank."
But, as the Vice-Chancellor noted at paragraph [53] of his judgment, the tribunal did not spell out, in terms, what modification to the finding in paragraph 81 of the first decision was required in the light of their further findings of fact.
"while the transmission of the authorisation is an essential step, it does not itself bring about the payments or transfers. These are effected by Girobank".
"20. Before functions of the kind performed by SDC are examined, it must be pointed out that, according to settled case-law of the court, the terms used to describe the exemptions envisaged by art 13 of the Sixth Directive are to be interpreted strictly since these constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a taxable person (judgment in Stichtung Uitvoering Financiλle Acties v Staatssecretaris van Financiλn (Case 348/87) [1989] ECR 1737 at 1753, para 13).
21 Furthermore, as the court pointed out in its judgment in EC Commission v Netherlands (Case 235/85) [1987] ECR 1471 at 1489, para 18, and its judgment in Stichtung Uitvoering Financiλle Acties v Staatssecretaris van Financiλn (Case 348/87) [1989] ECR 1737 at 1752, para 11, it is evident from the 11th recital of the preamble to the Sixth Directive that the exemptions constitute independent concepts of Community law which must be placed in the general context of the common system of VAT introduced by the directive.
22. Finally, a comparison of the various language versions of point (3) of art 13B(d) reveals that there are differences in terminology with regard to the phrase 'transactions concerning'. In view of those linguistic differences, the scope of the phrase cannot be determined on the basis of an interpretation which is exclusively textual. In order to clarify its meaning, reference must therefore be made to the context in which the phrase occurs and consideration given to the structure of the Sixth Directive (see Skatteministeriet v Henriksen (Case 173/88) [1990] STC 768 at 778, [1989] ECR 2763 at 2780, paras 10 and 11)."
It is pertinent, also, to have in mind the need to which Advocate General Colomer had referred at paragraph 63 of his opinion to keep the exemption for which article 13B(d)(3) provides within the confines of what constitutes its legal object. He described those as "the financial operations and transactions . . . agreed between commercial entities".
"Transfer and payments
"61. It is necessary to consider first of all whether the operations carried out by a data-handling centre such as SDC in the effecting of a transfer can themselves be described as transactions concerning transfers within the meaning of point (3) of art 13B(d) of the Sixth Directive.
62. The Danish Ministry for Fiscal Affairs argues that the services provided by SDC are in fact composed of various administrative or technical components which are invoiced individually. No price is fixed in advance for the transfer, the transfer of funds or the services in their entirety. Consequently, the services provided by SDC are different from those covered by point (3) of art 13B(d) of the Sixth Directive.
63. SDC, on the other hand, states that, in order for the exemption to apply, it is not necessary for the services supplied to be complete services but it is sufficient that the supply in question should be an element of a financial service in which various operators participate and which, taken as a whole, constitutes a complete financial service.
64. Given this difference in view, it must be noted first of all that the wording of point (3) of art 13B(d) of the Sixth Directive does not in principle preclude a transfer from being broken down into separate services which then constitute 'transactions concerning transfer' within the meaning of that provision and which are invoiced by specifying the elements of those services. The invoicing is irrelevant for the application of the exemption in question, provided that the actions necessary for effecting the exempt transaction can be identified in relation to the other services.
65 However, since point (3) of art 13B(d) of the Sixth Directive must be interpreted strictly, the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which the element represents is exempt. The interpretation put forward by SDC cannot therefore be accepted.
66. In order to be characterized as exempt transactions for the purposes of points (3) and (5) of Article 13B, the services provided by a data-handling centre must, viewed broadly, form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For 'a transaction concerning transfers', the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the Directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre's responsibility vis-ΰ-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.
67. It is for the national court, which is acquainted with all the facts of the case, to determine whether the operations carried out by SDC have such a distinct character and whether they are specific and essential.
68 In view of all foregoing considerations the reply to be given to the first and fourth questions concerning point (3) of art 13B(d) of the Sixth Directive must be that this provision is to be interpreted as meaning that transactions concerning transfers and payments include operations carried out by a data-handling centre if those operations are distinct in character and are specific to, and essential for, the exempt transactions."
Conclusion
Lord Justice Sedley:
Lady Justice Arden: