EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Nimmo Smith Lord Kingarth Lord Clarke	[2006] CSIH 42 XA41/05   OPINION OF THE COURT   delivered by LORD NIMMO SMITH   in   APPEAL   under section 11 of the Tribunals and Inquiries Act 1992   by   SCOTTISH EXHIBITION CENTRE LIMITED Appellant;   against   THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents:   _______

 

 

Act: Tyre, Q.C.; Dundas & Wilson, C.S., LL.P.

Alt: J. Campbell, Q.C.; Shepherd & Wedderburn

 

14 July 2006

 

Introduction

[1] This is an appeal against a decision of the Edinburgh VAT and Duties Tribunal ("the Tribunal") dated 23 March 2005. The appellant owns and operates premises in Glasgow known as the Scottish Exhibition and Conference Centre ("the SECC"). One of its trading divisions acts as a ticket selling agent for events held at the SECC. A customer who pays for a ticket by credit card or, in most instances, by debit ("Switch") card, is charged a "booking fee" in addition to the price of the ticket. The questions which arise in this appeal are: (1) whether, on a proper view of the evidence the booking fee is charged for the facility of paying by credit card or by debit card, and not for some other facility; and (2) if so, whether the booking fee falls within the scope of the exemption from VAT provided for by the legislation referred to below. The Tribunal found in favour of the respondents on both these questions. In order to succeed in this appeal the appellant must persuade us that the Tribunal erred in law, and should have found in their favour on both questions.

 

The relevant legislation

The European legislation

[2] The starting point is EC Council Directive 77/388 of 17 May 1977 on the harmonisation of legislation in Member States concerning turnover taxes ("the Sixth Directive"). It recites that -

"a common list of exemptions should be drawn up so that the Communities' own resources may be collected in a uniform manner in all the Member States:"

and

"the obligations of taxpayers must be harmonised as far as possible so as to ensure the necessary safeguards for the collection of taxes in a uniform manner in all the Member States;".

Title X deals with exemptions. Article 13 deals with exemptions within the territory of the country and is divided into two parts, A and B. Part A confers exemptions for certain activities in the public interest. Part B is entitled "Other Exemptions". So far as relevant it provides:

"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 such exemptions and of preventing any possible evasion, avoidance or abuse:

[(a) to (c)]

(d) the following transactions:

[1 to 2]

3 transactions, including negotiation, concerning deposit and

current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

[4 to 6]."

 

The United Kingdom legislation

[3] Section 4 of the Value Added Tax 1994 Act provides inter alia:

"(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him."

Section 5(2)(a) provides that "supply" in the Act includes all forms of supply, but not anything done otherwise than for a consideration. Section 31(1) provides that a supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9. Group 5 in Schedule 9 is entitled "Finance" and contains a number of items, of which the following are relevant:

"2 The making of any advance or the granting of any credit.

5 The provision of intermediary services in relation to any transaction comprised in item ... 2 ... (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity."

Schedule 9 includes notes by reference to which, as provided in section 96(9), the items in the schedule are to be interpreted. Note (4) to Group 5 provides:

"This Group includes any supply by a person carrying on a credit card, charge card or similar payment card operation made in connection with that operation to a person who accepts the card used in the operation when presented to him in payment for goods or services."

Note (5) provides:

"(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."

[4] The provisions of the 1994 Act quoted above are designed to implement the provisions of Article 13B(d) of the Sixth Directive. As those provisions have direct effect and as the court is required to construe the equivalent provisions of the 1994 Act in the light of the requirements of the Article, it is to the European legislation that we must ultimately have regard. The appellant does not claim to be entitled to an exemption under the Act which is not available under the Article, and the appeal was conducted on the basis that it was common ground that the relevant provisions of the Act have the same effect as those of the Article. We agree with the criticisms made by Sir Andrew Morritt V-C in Customs and Excise Commissioners v BAA plc [2003] STC 35 at para. [46] and Bookit Limited v Revenue and Customs Commissioners [2005] S.T.C. 1481 at para. [14]. As he said in the latter case:

"What is the point of the draftsman of the Act setting out in his own elaborate language what he understands to be the effect of the Sixth Directive? In cases where the Sixth Directive is mandatory and of direct effect to do so is, at best, unnecessary and at worst gives rise to a breach of the United Kingdom's obligation not to afford any exemption wider or narrower than that allowed by the Sixth Directive."

 

The first question

[5] The Tribunal heard evidence from only one witness, John Sharkey, C.A., M.B.A., the appellant's Financial Director. They described his evidence as being uncontroversial, except in one minor respect. They were also referred to various documents. Their findings in fact were relatively brief, and did not quote from the documents. The account which follows is derived from the Tribunal's findings in fact, supplemented by reference to the documents and by points made by counsel in their submissions.

[6] The appellant's business is the provision of accommodation for exhibitions, conferences, concerts and other public entertainments at the SECC. The appellant does not itself arrange such events, but contracts with their promoters to provide a location for their events, together with other facilities and support. It is in regular contact with several such promoters. In relation to concerts in particular the appellant will typically enter into two contracts with the promoter, a hire agreement and a ticket sale agreement. The appellant has a box office organisation to facilitate the sale of tickets. In terms of the venue hire agreement typically the appellant would seek to sell at least a 50% allocation of tickets. It is important for the appellant's business with promoters to offer, in addition to accommodation, contact with a regular audience support and a ticket distribution network. The appellant attracts a high proportion of regular patrons in its audiences. The appellant sells tickets as the agent of the promoter. The appellant is not paid by the promoter for selling tickets.

[7] Among the documents is a copy of a hire agreement between the appellant and Clear Channel Entertainment Music UK Limited, promoter of a concert to be given by the entertainer Will Young, which is typical of the hire agreements entered into between the appellant and promoters. Its provisions, so far as relevant, are as follows:

"1. HIRE

1.1 We agree that:-

1.1.1. subject to the terms of this Hire Agreement including

the Conditions set out in paragraph 9 below you have the right to use the premises comprised in Hall 4 in its entirety and related offices at the Centre ('the Premises');

1.1.2. this right is granted to enable you to stage the event to

be called WILL YOUNG, (the 'Event');

1.1.3. this right is for the period from 0600 hrs on 02.12.2004

to 0400 hrs on 03.12.2004 inclusive (the 'Hire Period');

1.1.4. the Event shall be open to visitors from 1830 hrs to

2330 hrs on 02.12.2004 (the 'Open Period').

1.2. You agree to stage the event and to use the Premises

throughout the Hire Period solely for the Event.

2. SERVICES

2.1. We will provide, or arrange for the provision of, the services

listed in Paragraph 8 below, ('the Services') during the Hire Period, and you agree to accept the Service.

3. CHARGES

3.1 You will pay us charges of £26,500 exclusive of VAT ('the

Charges'), for the use of the Premises and the provision of the Services during the Hire Period. In the event of early termination of the Agreement the Charge will be based on tickets sold at the time of termination or the minimum guarantee whichever is the greater.

...

6. TICKET ALLOCATION

6.1. You shall ensure that at least 50% of the total number of each

category of ticket for the Event shall be available for sale through the Box Office operated by Scottish Exhibition Centre Limited you agree to co-operate with us to facilitate the sale and distribution of such tickets."

The services listed in paragraph 8 related to personnel, facilities and ancillary equipment. The conditions set out at paragraph 9 are not relevant for present purposes.

[8] The ticket sale agreement between the appellant and the same promoter, which is typical of ticket sale agreements entered into between the appellant and promoters, narrated that the parties had entered into the hire agreement and that the promoter now wished to appoint the appellant as the promoter's agent to sell tickets for the event on the promoter's behalf, on the terms and conditions set out in the ticket sale agreement. It then provided inter alia, as follows:

"1. You hereby appoint us as your agent to sell tickets for the Event on

your behalf and we hereby accept the appointment and agree to sell tickets for the Event on the terms and conditions set out in this Agreement.

2. Tickets for the Event shall be sold by us at the prices set out in the

schedule attached to this Agreement (the 'Schedule'). The prices set out in the Schedule are expressed inclusive of Value Added Tax but exclusive of any booking fee, which may be charged by us.

3. Subject to 4 and 6 below, we shall within seven (7) days after the Event

account to you for all sums received by us in respect of tickets for the Event sold by us on your behalf.

4. We shall be entitled to deduct from the sums due to you, under 3

above, the following:

(a) all sums due to us (including but not limited to charges for hire

of the premises and Performing Rights Society charges) pursuant to the Hire Agreement.

(b) any booking fee charged by us;

(c) commission (including value added tax) at a rate of ...% of the

price of each ticket sold by us; ...

7. If the Event is cancelled, abandoned or postponed, or if you become

insolvent or bankrupt, or go into liquidation or receivership, or if the Hire Agreement is terminated for any reason whatsoever, we shall be entitled in our sole discretion (but under no circumstances shall we be obliged), and you hereby authorise us, to refund any sums received by us in respect of sales of tickets for the Event to the purchasers of those tickets ...

8. Notwithstanding our rights under 7 above, if the Event is abandoned,

postponed or cancelled you shall be responsible to purchasers of tickets for the Event for all refunds of sums paid in respect thereof."

As can be seen, the appellant is entitled in terms of paragraph 4(b) and (c) to charge the promoter a booking fee and commission, but in practice these charges are never made. This is borne out by a financial statement relating to the Will Young event. It is also borne out by some specimen tickets for the event.

[9] Members of the public may obtain tickets from the appellant by calling in person at the box office at the SECC or at the appellant's branch retail unit at St. Enoch Square, Glasgow, by telephone or over the Internet. Payment may be made by credit card or debit card, by cheque or, when payment is made in person at the SECC or the St. Enoch unit, by cash. The large majority of ticket purchases are by telephone, using a credit card. Customers who pay by credit card are obliged to pay, in addition to the price of the ticket, a booking fee, which is usually about 10% of the ticket price. Customers who pay by debit card are also obliged to pay this booking fee, except when the purchase is made at the box office at the SECC or at the St. Enoch unit. Payments by debit card at the SECC box office and at the St. Enoch unit constitute only a small minority of the total number of sales. It should be noted that the booking fee charged to a customer is different from, and should not be confused with, the booking fee which the appellant is entitled to charge a promoter in terms of paragraph 4(b) of the ticket sale agreement, which in practice is not charged.

[10] The Tribunal found as a fact that the booking fee is charged to a customer only when payment is made by credit card or debit card. This was borne out by a summary which was among the documents before the Tribunal. Mr. Sharkey gave evidence that the booking fee was paid for the facility of booking by credit card or debit card. On this basis, the Tribunal were invited to reach the conclusion that the 10% booking fee was for the facility of paying by credit card or debit card. This was the only service which attracted the payment of the booking fee, and no booking fee was charged for payment by any other method.

[11] The Tribunal, however, reached a contrary conclusion. They did so after taking account of additional matters of fact. First, the appellant had entered into a Cardnet retailer agreement with Lloyds TSB Bank plc, trading as Cardnet Merchant Services, wherein they were referred to respectively as "the Retailer" and "the Bank". Clause 12.1 of the agreement, so far as relevant, provided:

"[T]he Bank will pay to the Retailer all sums due as recorded on Vouchers or as Transaction data ... submitted in accordance with this Agreement by crediting a bank account nominated by the Retailer and approved by the Bank."

There was provision for various sums to be paid by the appellant as retailer, and for "chargebacks", which were made mainly where a card had been used improperly, so that the appellant bore the loss. The Tribunal held that, for example, on a £100 ticket sale a booking fee of £10 would be added. Out of this £1.50 would be paid to Cardnet when payment was paid by credit card, and 25p. when payment was made by debit card. The balance of the booking fee was used to meet the appellant's costs in maintaining the box office and its general infrastructure such as staff, telephone system, information technology expenses and so on. The annual value of booking fees was just over £1m. The appellant accounted to the promoter for receipts from ticket sales, under deduction of inter alia the venue hire payment. No adjustment was made in respect of "chargebacks" or the appellant's costs.

[12] Secondly, the appellant's staff who dealt with telephone enquiries by prospective purchasers of tickets gave information on seat availability and layout and seat pricing, took credit card details, and reserved and issued tickets. They regularly dealt with further enquiries relating to the venue, parking facilities, travel routes, and restaurant facilities at the SECC and in its vicinity. They regularly gave details of supporting acts and other future promotions at the SECC. The Tribunal held that all of this was "designed to assist the appellant's business strengths and competitiveness and obtain 'repeat business' from their regular customer base". There was some evidence that the appellant's staff on occasion responded to telephone enquiries about the booking fee by stating that it was levied in respect of "telephone bookings". While this was not strictly accurate, it reflected the fact that telephone bookings would almost invariably be made by purchasers paying by credit card or debit card.

[13] In their decision, the Tribunal said, at pages 12 to 15:

"The primary issue for determination is the extent of the agency in terms of which the appellant acted for its promoter customers. ... The 'box office' and telephone booking service maintained by the appellant is extensive. The contractual relationship with the promoter does not require this. ... The reason for this service in our view is the appellant's eagerness to promote itself as a popular venue and anxiety to develop a 'customer loyalty' and 'customer base' to better enable it to sell to promoters space for concerts and other entertainment ... We note that the cost of this service as represented by the fee exceeds substantially the credit card charge on the transaction. ... It follows in our view that the range of services provided by the appellant at the box office and by telephone extends well beyond its role as agent of the promoter which is (simply) for the sale of tickets. These services are undertaken by the appellant as a principal and in its own interests. ... In the present case there is a booking service offering extensive customer support with a view to promoting the appellant's business and with the credit card facility representing an ancillary aspect enhancing the main service."

[14] In our opinion the Tribunal erred in reaching this conclusion. Although senior counsel for the respondents valiantly attempted to defend the Tribunal's reasoning, we prefer the submissions advanced by senior counsel for the appellant, under reference to paragraph 1 of its grounds of appeal. The Tribunal gave no reason why it apparently rejected Mr. Sharkey's evidence, that the booking fee was paid for the facility of booking by credit card or debit card. There is some indication that the Tribunal confused the booking fee charged by the appellant to a customer with the booking fee the appellant was entitled to charge, but did not in practice charge, to the promoter in terms of paragraph 4(b) of the ticket sale agreement. The Tribunal took into account the evidence about the giving of certain information by telephone operators, without recognising that there was no evidence that the giving of any such information constituted any part of any supply made for a consideration by the appellant. It was held in Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA (Case C-154/80) [1981] ECR 445 at paragraph 12, that there must be a direct link between the consideration and the supply; see also sections 4(1) and 5(2)(a) of the 1994 Act. The Tribunal erroneously took into account the fact that the cost of the service exceeded the booking charge on the transaction. The use made by the appellant of the proceeds of the fee charged was irrelevant to its proper characterisation. The Tribunal also erred by taking into account the role of the appellant as agent of the promoter. Supplies consisting of sales of tickets were made not by the appellant, but by the promoter through the appellant as agent. These supplies were therefore irrelevant in the characterisation of the nature of the supply made by the appellant in its own right. Most importantly, the Tribunal erred by failing to take into account the undisputed evidence that a fee was charged whenever, and only whenever, a booking was made by credit card or debit card. The Tribunal failed to take into account the fact that a booking fee would be incurred by a customer paying by credit card in person at the box office, and the fact that no fee would be incurred by a telephone booking in which the customer paid by cheque rather than by credit card. In these circumstances, in our opinion the Tribunal based their decision upon matters which they ought not to have taken into account and disregarded matters which they ought to have taken into account. Having regard to the Tribunal's findings in fact and to Mr. Sharkey's uncontroversial evidence, the only conclusion reasonably open to the Tribunal was that the booking fee charged by the appellant was charged in consideration of the facility of booking by credit card or debit card. In our opinion, no reasonable Tribunal could have reached the conclusion which the Tribunal reached. For these reasons the first question falls to be answered in the first alternative.

 

The second question

[15] Before the Tribunal the argument for the appellant focused on the expression "negotiation" rather than the expression "transfers" in Article 13B(d) of the Sixth Directive. The Tribunal took into consideration the decision of the VAT Tribunal in Bookit Limited v Commissioners of Customs & Excise (VAT Tribunal decision Nos. 18626 and 18856) [2004] V & D.R. 421. The Tribunal held, at pages 15 to 16 of their decision:

"The actings of the Appellant company are simply the passing of credit card information to Cardnet, which 'triggers' a transfer of funds from the relevant bank or card issuer to the Appellant's account. In the scenario of a customer acting in good faith there will be a pre-existing credit facility available which the customer can draw on. The function carried out by the Appellant is minimal and in the retailing context a commonplace and routine event. ... In our view the actings of the Appellant do not fall happily within the sense of a 'negotiation'. ... [W]e agree with the interpretation adopted in para. 90 [of the Tribunal decision in Bookit] that the transmission of credit card information ... does not amount to a 'negotiation' or an 'intermediary service' ... For these reasons we do not consider that the sales of tickets by credit card fall within the exemption ... ."

[16] Before us, senior counsel for the appellant, while not abandoning the proposition that they constituted "negotiation", placed his main emphasis on the argument that the services supplied to customers, for the consideration of the booking fees, were "transactions ... concerning ... transfers" within the meaning of Article 13B(d) of the Sixth Directive. In support of this counsel founded on a series of cases.

[17] In Sparekassernes Datacenter v Skatteministeriet (Case C-2/95) [1997] ECR I-3017; [1997] STC 932 ("SDC"), the European Court of Justice said, at para. 53:

" ... [I]t 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."

[18] Later in the judgment, the court went on to say, under the heading "Data-handling services and their character":

"60 By its fourth question the national court seeks to ascertain whether the

VAT exemption must be granted where a person either performs only part of a complete service or carries out only certain operations necessary for the supply of a complete exempt financial service. Given that the first question concerns the exemption of the data-handling element in the services envisaged by points 3 and 5 of Article 13B(d), these questions can be examined together

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 in themselves be described as transactions concerning transfers within the meaning of point 3 of Article 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 Article 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 of view, it must be noted first of all that the

wording of point 3 of Article 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 transfers' 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 Article 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 that 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-à-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 Article 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."

[19] In the course of his judgment in Customs and Excise Commissioners v FDR Ltd. [2000] STC 672 ("FDR"), with which the other members of the Court of Appeal agreed, Laws L.J. said:

"36. First, however, there is something to be said about the very meaning of a 'transfer' of money, a concept not defined in the Sixth Directive. It is, even nowadays, not difficult to be beguiled by the old model of a transfer in specie, when money in the shape of tangible coin was moved from one place, and one owner, to another place and another owner. We were shown two cases decided in the Commercial Court which describe the modern reality. The first was Momm v Barclays Bank International Ltd [1977] QB 790. A credit entry had been made in the plaintiffs' bank account on 26 June. The next day it was purportedly reversed in circumstances which for present purposes I need not describe. Kerr J said (at 799-800):

'The issue is whether or not a completed payment had been made by the defendants to the plaintiffs on June 26 ... If there were no authorities on this point, I think that the reaction, both of a lawyer and a banker, would be to answer this question in the affirmative. I think that both would say two things. First, that in such circumstances a payment has been made if the payee's account is credited with the payment at the close of business on the value date, at any rate if it was credited intentionally and in good faith and not by error or fraud. Secondly, I think that they would say that if a payment requires to be made on a certain day by debiting a payor customer's account and crediting a payee customer's account, then the position at the end of that day in fact and in law must be that this has either happened or not happened, but that the position cannot be left in the air. In my view both these propositions are correct in law.'

Kerr J proceeded to refer to Eyles v Ellis (1827) 4 Bing 112. There Best CJ, delivering the judgment of the court, said (at 114) -

' ... on the 8th a sum was actually placed to the plaintiff's account; and though no money was transferred in specie, that was an acknowledgement from the bankers that they had received the amount from Ellis. The plaintiff might then have drawn for it, and the bankers could not have refused his draft.'

The case remains good law, as Kerr J made clear; and he said in Momm (at 800):

'The important feature of the case for present purposes is that payment was held to be complete when the payee's bank account was credited and before the payee had had any notice that this had happened.'

The other case decided in the Commercial Court is Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728. Staughton J said (at 750):

'Any account transfer must ultimately be achieved by means of two accounts held by different beneficiaries with the same institution. In a simple case the beneficiaries can be the immediate parties to the transfer. If Bankers Trust held an account with the A bank which was in credit to the extent of at least $131m., and the Libyan Bank also held an account at the A bank, it would require only book entries to achieve an account transfer. But still no property is actually transferred. The obligation of Bankers Trust is extinguished, and the obligation of A bank to Bankers Trust extinguished or reduced; the obligation of A bank to the Libyan Bank is increased by the like amount. On occasion a method of account transfer which is even simpler may be used. If X Ltd. also hold an account with Bankers Trust London, and the Libyan Bank desire to benefit X Ltd., they instruct Bankers Trust to transfer $131m. to the account of X Ltd. The obligation of Bankers Trust to the Libyan Bank is extinguished once they decide to comply with the instruction, and their obligation to X Ltd. is increased by the like amount. That method of account transfer featured in Momm v Barclays Bank International Ltd [19770 QB 790. In a complex transaction at the other end of the scale there may be more than one tier of intermediaries, ending with a Federal Reserve Bank in the United States.'

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 debt in the payor's account. There may be - will be - problems in cases of error or fraud in the posting of entries to the accounts. But however those may fall to be resolved, there is no further, elusive, event by which the money is really transferred: no Platonic form, of which day-to-day transfers are only shadows. The pro and con entries constitute the transfer. There is nothing else. I recognise, of course, that this reasoning boils down the reality to the simplest case. In truth, creditor and debtor may have accounts at banks A and B respectively; banks A and B may themselves have accounts at banks C and D respectively; and it may be only when one comes to banks J and K that one finds both of them having accounts at the Bank of England. But the logic is unaffected.

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 Sixth Directive imports by the term 'transfer' inheres in the notion of a 'change in the legal and financial situation' - an expression used in both paras 53 and 66 (see [1997] STC 932 at 954 and 955, [1997] ECR I-3017 at 3058 and 3061-3062) - where that is a reference to the effects of the corresponding credit and debit entries in the accounts of the paying and receiving parties. This is a point which in my judgment possesses particular resonance when one comes to counsel's submissions relating to 'netting-off'."

[20] 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 ("CSC") at paragraph 39 the European Court of Justice said:

"It is not necessary to consider the precise meaning of the word 'negotiation', which also appears in other provisions of the Sixth Directive, in particular, Article 13B(d)(1) to (4), in order to hold that, in the context of Article 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contracts. 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."

Reference was also made to Customs and Excise Commissioners v BAA plc [2003] STC 35, which was principally concerned with the meaning of the expression "negotiation of credit".

[21] These authorities were applied in the recent case of Bookit Limited v Revenue and Customs Commissioners, supra. The decision of the Vice-Chancellor was affirmed by the Court of Appeal: [2006] EWCA Civ 550, 11 May 2006, not yet reported. The decision of the Court of Appeal came after the hearing of the appeal in this case, but we have had the benefit of further written submissions by counsel for both parties. Odeon Limited ("Odeon") was the holding company of a group which owned and operated cinemas. Bookit Limited ("Bookit") was another company in the Odeon Group which operated a call centre through which an intended cinema-goer ("the Customer") might book and, by the use of a debit or credit card, pay for a seat for a given future performance at a specified cinema in the chain. For the service it provided to the customer Bookit charged a handling charge. The Court of Appeal proceeded on the basis of the Vice-Chancellor's summary of the underlying facts of the case, at paragraph 5 of his judgment, in these terms:

"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

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 charge it has retained."

[22] As explained by Chadwick L.J. at para. 35 of the Court of Appeal decision:

"[T]he 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."

Having considered the authorities, Chadwick L.J. said:

"45. 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 [Merchant Services Agreement] - 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.

46. 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."

[23] Senior counsel for the respondents placed reliance on the following cases. In Card Protection Plan Ltd. v Customs and Excise Commissioners (Case C-349/96) [1999] 2 AC 601 ("CPP") the House of Lords made a reference to the European Court of Justice for a preliminary ruling on the test for determining inter alia whether a transaction consisted of a single supply or a number of distinct supplies. The insurance company provided to their customers inter alia indemnity against the loss or theft of their credit cards and also services which included a computerised record of cards and the rendering of assistance to customers in notifying card-issuing companies and obtaining new cards after a loss. The European Court of Justice answered the questions on this point in these terms:

"26. By its first two questions, which should be taken together, the national court essentially asks, with reference to a plan such as that offered by C.P.P. to its customers, what the appropriate criteria are for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately.

27. It must be borne in mind that the question of the extent of a transaction is of particular importance, for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive. In addition, having regard to the diversity of commercial operations, it is not possible to give exhaustive guidance on how to approach the problem correctly in all cases.

28. However, as the court held in Faaborg-Gelting Linien A/S Finanzamt Flensburg (Case C-231/94) [1996] ECR I-2395, 2411-2412, paras. 12-14, concerning the classification of restaurant transactions, where the transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which that transaction takes place.

29, In this respect, taking into account, first, that it follows from article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, secondly, that a supply which comprises a single service from an economic point of view should not be artificially split so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service.

30. There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service. A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied: Customs and Excise Commissioners v Madgett and Baldwin (trading as Howden Court Hotel) (Joined Cases C-308/96 and 94/97) [1998] STC 1189, 1206, para. 24.

31. In those circumstances, the fact that a single price is charged is not decisive. Admittedly, if the service provided to customers consists of several elements for a single price, the single price may suggest that there is a single service. However, notwithstanding the single price, if circumstances such as those described in paragraphs 7 to 10 above indicated that the customers intended to purchase two distinct services, namely an insurance supply and a card registration service, then it would be necessary to identify the part of the single price which related to the insurance supply, which would remain exempt in any event. The simplest possible method of calculation or assessment should be used for this: see, to that effect, Madgett and Baldwin, at p. 1208, paras. 45 and 46.

32. The answer to the first two questions must therefore be that it is for the national court to determine, in the light of the above criteria, whether transactions such as those performed by C.P.P. are to be regarded for VAT purposes as comprising two independent supplies, namely an exempt insurance supply and a taxable card registration service, or whether one of those two supplies is the principal supply to which the other is ancillary, so that it receives the same tax treatment as the principal supply."

[24] When the case returned to the House of Lords, Card Protection Plan Limited v Customs and Excise Commissioners (No. 2) [2002] 1 AC 202, Lord Slynn of Hadley said at para. 22:

"It is clear from the Court of Justice's judgment that the national court's task is to have regard to the 'essential features of the transaction' to see whether it is 'several distinct principal services' or a single service and that what from an economic point of view is in reality a single service should not be 'artificially split'. It seems that an overall view should be taken and over-zealous dissecting and analysis of particular clauses should be avoided."

[25] Senior counsel for the respondents also relied on College of Estate Management v Revenue and Customs Commissioners [2005] 1 W.L.R. 335, especially per Lord Walker of Gestingthorpe at para. 30 where, in commenting on para. 30 of the judgment of the European Court of Justice in CPP, he said that the court was not asserting that every distinct element of a supply must be a separate supply for VAT purposes unless it was "ancillary". "Ancillary" meant subservient, subordinate and ministering to something else. He said that there were cases in which it was inappropriate to analyse the transaction in terms of what was "principal" and "ancillary", and it was unhelpful to strain the natural meaning of "ancillary" in an attempt to do so.

[26] Against the background of these authorities, senior counsel for the appellant submitted that what SDC established was that a service might be exempt even if it was not provided to the end customer. What was exempted was the transaction for transferring funds between accounts. The service in the present case consisted of arranging for payment to the appellant as agent by Cardnet of the price of tickets. Cardnet in turn collected from the card issuer and the card issuer recovered from the cardholder. Under reference to FDR, it was submitted that here there was a transaction concerning the transfer of money from the acquirer, Cardnet, to the appellant who held money as agent for the promoter, accounting for it in due course to the promoter as payment for sale of the ticket. The booking fee that was paid to the appellant as consideration for carrying out the transaction was payment for a transaction concerning a transfer. In any event, what had taken place constituted negotiation (though this was not critical to counsel's argument): see CSC at para. 39. The components identified by Chadwick L.J. in Bookit existed also in the present case: (1) the service supplied by the appellant to the customer included the transmission of card information, etc. to Cardnet which, as the Tribunal found, operated as an intermediary between the retailer and the card issuer; (2) it was a necessary incident of the supplier's services having that component that the price of the ticket was transferred to the appellant's account and became payable by the customer to the customer's credit card issuer; and (3) the credit to the appellant's account was a payment or transfer for the purposes of Article 13B(d)(3) of the Sixth Directive. It was thus equally the case that the service supplied by the appellant had the effect of transferring funds and of effecting a change in the legal and financial situation. The reasoning of Chadwick L.J. in Bookit, applying the guidance of the European Court of Justice in SDC, might thus be applied to the present case. Adapting Chadwick L.J's approach at para. 46, the services which the appellant supplied had the effect which the customer contemplated and intended that they would have, albeit the customer might have been indifferent to the mechanism by which this was achieved. The services were therefore, according to the SDC analysis, specific to, and essential for, the effecting of payment for tickets by credit card or debit card. Counsel sought to distinguish CPP, on the ground that in the present case the appellant acted as agent for the promoter. The 10% booking fee was not part of a larger supply because the supply was being made to the purchaser by different persons. There could not be a single service consisting both of the sale of the ticket and of the supply of the credit card facility. Nothing in the evidence suggested that there was a unum quid, in which the facility of payment by credit card or debit card was ancillary.

[27] Senior counsel for the respondents submitted that the unum quid was everything that the appellant did as a principal in its own right. If so, payment by credit card or debit card was not to be seen as ancillary to the other services provided by the appellant. But the appellant supplied a whole range of services. If the 10% booking fee was solely for the facility of paying by credit card or debit card, there was no consideration for the other services, which accordingly did not constitute supplies. The question therefore was whether the customer who paid the 10% booking fee was buying a range of services and not just the facility for paying by card. If the charge was for a range of services, CPP applied. Moreover, in transmitting card details to Cardnet, the appellant did not effect the transfer of funds. The transmission of data was a technical aspect, and did not have the effect of causing someone else to transfer funds. The transmission of data did not alter the legal or financial situation: others did that. Contrary to what was found in Bookit, the assessment of the Tribunal in the present case, to the effect that the actings of the appellant were simply the passing of credit card information to Cardnet, which triggered a transfer of funds from the relevant bank or card issuer to the appellant's account, was accurate, and described a transaction which was not exempt in terms of the legislation. There were no grounds to apply the reasoning for exemption in Bookit to the present case, as there was little similarity between the identified components of the supply to the customer. Further, the support given by the Court of Appeal to the original Tribunal decision in Bookit was strong support for the decision of the Tribunal in the present case on the facts as found by it.

[28] Having regard to our decision on the first question, and to the decision of the European Court of Justice in SDC, we find that there is little that we require to say on the second question. Both in fact and in law the appellant provides two separate services to customers who pay for tickets by credit card or debit card. The appellant acts as agent for the promoter in selling the ticket, and as principal in charging the booking fee for taking the steps necessary to effect payment by credit card or debit card. While the customer might not be aware of the detail by which this might be effected, he or she is aware that there are two charges, one for the price of the ticket and the other for the facility of payment by credit card or debit card. On this analysis, it is impossible to describe the latter as ancillary to the former. On the approach laid down in CPP, the essential features of the transaction constitute two distinct principal services from an economic point of view, and to treat the transaction as we have done does not constitute the artificial splitting of a single service.

[29] While there is less detailed information in the Tribunal's findings in fact in the present case about the means by which information is transmitted by the appellant to Cardnet and by which Cardnet transmits payment to the appellant than there was in Bookit, there is no reason to think that the mechanism in its main features is any different in the two cases. The facility for payment by credit card or debit card effects a change in the legal and financial situation, whereby money is transferred from the customer to the appellant, within the meaning of SDC, as further explained in FDR. The four components referred to by Chadwick L.J. at para. 35 in Bookit appear to us to be present in this case, mutatis mutandis. To adapt what he said, at para. 46, there can be no doubt that, in requesting and accepting the appellant's services, the customer contemplates that some payment will be made which will enable him or her to obtain the tickets which are requested, and intends that the appellant will arrange for that. In some respects, the present case is a fortiori of Bookit, because the appellant and the promoter are not part of the same corporate group and the relationship between them is solely contractual. As a result of the transaction between the appellant and the customer there is a change in the legal and financial situation existing between them: SDC, as explained in FDR. Further, whereas in Bookit the underlying contractual arrangement to enable payment to be made by credit card (the Merchant Services Agreement) was entered into by Odeon (and its subsidiary, Bookit) with Girobank, in the present case the appellant itself entered into the necessary underlying agreement (with Cardnet) in order to provide customers with the relevant payment facilities (for which facilities the relevant charges were, as we have found, made). It is thus perhaps even more difficult to describe the service provided as a mere physical or technical supply. In any event, even if this is wrong, it appears to us that the actings of the appellant constitute negotiation, as that concept was explained in CSC.

[30] For these reasons the second question falls to be answered in the affirmative; the booking fee falls within the scope of the exemption as constituting a transaction concerning transfer, and in any event negotiation concerning transfer.

 

Result

[31] The appeal accordingly succeeds. Since the appeal was against a decision, and not an assessment, it is sufficient for us to hold that the booking fees charged by the appellant to customers who pay by credit card or debit card are the consideration for exempt supplies within the meaning of Article 13B(d)(3) of the Sixth Directive.