United Kingdom VAT & Duties Tribunals Decisions

Scottish Exhibition Centre Ltd v Customs and Excise [2005] UKVAT V18994 (23 March 2005)

18994

Exempt Supplies – VATA 1994, Schedule 9, Group 5, Item 5 – Appellant acting as agent in respect of ticket sales for independent entertainment promoters leasing its premises – Box Office and related services provided additionally by Appellant on sale of concert tickets – additional charge ("booking fee") levied when purchase by credit card – whether additional charge exempt – Appeal dismissed.

EDINBURGH TRIBUNAL CENTRE

SCOTTISH EXHIBITION CENTRE LIMITED Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: (Chairman): Mr Kenneth Mure, QC

(Members): Mr K Pritchard, OBE., BL., WS

Mr Ian M P Condie, CA

Sitting in Edinburgh on Tuesday 15 and Wednesday 16 February 2005

for the Appellant Mr Colin Tyre, QC

for the Respondents Mr James Campbell, QC

© CROWN COPYRIGHT 2005.


 
DECISION

Introduction

In this Appeal the Appellant was represented by Mr Colin Tyre, QC. The Respondents were represented by Mr James Campbell, QC. The Tribunal heard evidence from Mr John Sharkey, CA, MBA, the Financial Director of the Appellant. Additionally we were referred to various items in the Bundle of Documents lodged.

The Appellant is a limited company owning exhibition premises which are leased generally as public venues. The issue in dispute is whether charges ("booking fees") levied by the Appellant on sales of tickets by credit card for events arranged on their premises by various independent promoters should be standard rated for VAT purposes or, rather, fall within the exemption provided for in Item 5, Group 5, of Schedule 9, VATA 1994. Most of such sales were made by telephone.

The Law

Section 31 VATA 1994 provides that certain supplies of goods and services as specified in Schedule 9 are exempt supplies for VAT purposes. Group 5 specifies as exempt –

"GROUP 5 – FINANCE

Item No

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.
2. The making of any advance or the granting of any credit.
3. 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.

NOTES

[(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, unless the financial service in question is the grant of credit and he is also making supplies of services comprising the management of credit to the grantor, or prospective grantor, of the credit.

(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].

Reference was made to the following decisions viz:

Leightons Ltd (LON/01/0303)

Bookit Ltd (LON/02/905)

Card Protection Plan Ltd v C&E [2001] STC 174

CSC Financial Services Ltd v C&E [2002] STC 57

European Commission v France [Case C-76/99)

Article 13(B)(d)(3) of the Sixth Directive provides for an exemption from VAT in respect of

"… transaction, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;"

The Facts

Mr Sharkey's evidence was uncontroversial (except, perhaps, for his criticism of the telephone responses set out at p.246 et seq. as being contrary to instruction) and on the basis of that evidence and the documentation referred to we make the following Findings-of-Fact, viz:-

4. The Appellant is a limited company. Its business is providing accommodation for exhibitions, conferences, concerts and other public entertainments at its premises at the Scottish Exhibition Centre at Glasgow.
5. The Appellant does not itself arrange exhibitions, conferences or concerts. Rather it contracts with the promoters of such events to provide a location for these with other facilities and support. It is in regular contact with several such promoters.
6. The Appellant's objective is to sell space for time and at the best price.
7. In relation to concerts in particular the Appellant will typically enter into 2 contracts with a promoter, viz a "venue hire agreement" (p157-178 of the Documents) in respect of accommodation usually for a lump sum or a percentage of ticket sales subject to a minimum value; and also a "ticket sale agreement" (p148 et seq). The payment for the hire of premises is the main consideration. The Appellant has a box office organisation to facilitate the sale of tickets.
8. In terms of the venue hire agreement typically the Appellant would seek to sell at least a 50% allocation of tickets (see clause 6.1). 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. (p148, 231 and 256). In terms of clause 2 of the standard ticket sale agreement the Appellant may charge a separate "booking fee" which it may retain. The Appellant is not paid by the promoter for selling tickets.
9. Members of the public may obtain tickets from the Appellant by calling personally at its box office at the SEC, its branch retail unit at St Enoch Square, Glasgow, by telephone or over the Internet. Payment may be made by credit card (or "Switch" card), by cheque or when payment is made in person at the SEC or the St Enoch Unit by cash. The large majority of ticket applications are by phone using a credit card.
10. The "booking fee" is charged only when payment is made by credit card (or "Switch" card). Usually it is about 10% of the ticket price. Typically on a £100 ticket sale a booking fee of £10 would be added, and out of this £1.50 would be paid to Cardnet, a Lloyds TSB operation, which processes credit card information received and then relayed by the Appellant (a 25p charge would be made for a "Switch" transaction). The balance of the booking fee is used to meet the Appellant's costs in maintaining the box office and its general infrastructure viz staff, telephone system, information technology expenses etc. It also covers "chargebacks" (see Finding-in-Fact 9). These costs are not reimbursed by the promoter. The annual value of "booking fees" is just over £1m.
11. A guide issued to the Appellant's box office staff is produced (p109). It makes reference to a "booking fee". Responses by the staff to telephone enquiries by the prospective ticket purchasers indicate that the booking fee was levied in respect of "telephone bookings" (p246 et seq). In addition to taking credit card details over the phone, giving information on seat availability and layout, seat pricing, and reserving and issuing tickets, the Appellant's staff regularly deal with further enquiries relating to the venue, parking facilities, travel routes, restaurant facilities at the Centre and in its vicinity. Further, they regularly give details of supporting acts and other future promotions at the Centre. All of this is designed to assist the Appellant's business strengths and competitiveness and obtain 'repeat' business from their regular customer base.
12. Cardnet is operated by Lloyds TSB as an intermediary between the retailer (such as the Appellant) and the credit card issuer. A copy of its standard agreement is produced (p116 et seq). It enables the transfer of payment to the retailer. Charges are made in respect of each transaction on both the retailer and card issuer. In certain circumstances (mainly where a card has been used improperly: see clause 14) a "chargeback" of the consideration can be levied on the retailer. Annually the Appellant would bear "chargebacks" totalling about £25,000 - £30,000. Cardnet was aware of the "booking fee" charged by the Appellant and had no objection to this (see its letter dated 11 February 2005 at p257).
13. The Appellant accounts to the promoter for ticket sales which it has achieved through its box office against which it sets inter alia the venue hire payment (p224 et seq). No adjustments in this accounting are made in respect of "chargebacks", box office expenditure, or "booking fees".

Submissions for Respondents

Mr Campbell moved us to dismiss the Appeal.

He referred to the Appellant's response to Question 2 at page 100 of the Documents, viz "the booking fee is meant to recover the costs of the ticket sales operation." In other words this acknowledged that the booking fee was in respect of a service extending far beyond Cardnet's services. This service ie the provision of an efficient booking system, was a major business advantage to the Appellant. While the sale of tickets was done by the Appellant qua agent of the promoter, the service beyond that was not done as an agent. The booking fee was not accounted for which contrasted with agency in which such an obligation would arise. The manner of sale of tickets and the requirement for a box office was not stipulated in the standard agreement with the promoter. It was a bonus, attractive to customers, serving to promote the Appellant's business.

Mr Campbell argued further that the 10% booking fee far exceeded the costs of Cardnet. The fee was calculated to meet the general overheads of the box office and its supporting systems. The risk of liability for "chargebacks" was in value only a very small part of the proceeds. The service extended beyond the extent of the agency contracted for between Appellant and promoter.

Mr Campbell sought to distinguish the decision in Bookit Ltd. That company was a subsidiary set up by Odeon Cinemas to make distance bookings. Odeon had closer control over Bookit Ltd than had the individual promoters over the Appellant. Following the decision in Card Protection Plan Ltd the various elements in the service should be viewed as a single transaction. That transaction did not fall within the Group 5 exemption, he argued.

Mr Campbell submitted that in this Appeal whether a credit or Switch card was used there was a pre-existing credit arrangement with the card issuer. The Appellant does not "pass funds". It simply passes on information to Cardnet. That is not an act of "mediation" or a "negotiation". It is a purely mechanical process. The Appellant does not bring together the card-holder and card-issuer in that there is a pre-existing financial arrangement. Where the card-holder acts bona fide within credit limits, he has a right to the card issuer's bearing liability. There is no "negotiation" at that stage. The dicta at para 39 in CSC Financial Services Ltd supported that view.

The factor of the Appellant's service involving Cardnet was only one element in the cost of the supply. It provided a better means of enjoying the principal service supplied. That was more extensive than in Bookit Ltd.

Submissions for Appellant

At the outset Mr Tyre indicated the 2 stages of his argument. To succeed both had to prevail. Firstly, all the services which the Appellant provided were made as "agents" of the promoters except for the credit card service. That was rendered by the Appellant itself and it had to be viewed in isolation. It was not part of a larger service or ancillary to other services provided by the Appellant as a principal. Further, the credit card service qualified in terms of Item 5 for exemption. On that aspect the decision in Bookit Ltd was wrong, he argued. The issue essentially was "who was supplying what and to whom?"

Mr Tyre lodged a typed summary of his argument to which reference is made. In essence the role of the Appellant in providing the services set out in para 11 of the Statement of Case (other than the credit card service) was as an agent. In effect it was the promoter as principal which provided these services. The "booking fee" was related to the credit card service only, he argued, and should be viewed independently of the other services made qua agent. Thus the principle in Card Protection Plan Ltd packaging several services as a single supply, was not applicable to the circumstances of the present appeal.

The nub of the case in Mr Tyre's view was the correct classification of the credit card service (alone) rendered by the Appellant to its customers. The interpretation of "negotiation" and "mediation" in considering the scope of Item 5 and related provisions followed in Bookit Ltd was too narrow. Crucially, Mr Tyre argued, there was no grant of credit until the card issuer was asked for funds. Mere willingness to provide credit was not the granting of credit. The process with "Switch" cards illustrated this: the service does not take place until the transfer occurs. Provided that the Appellant fell somewhere within the causal chain in the transmission of cash or credit it should be viewed as an intermediary and its service within Item 5.

In support of this submission Mr Tyre referred us to the decisions in CSC Financial Services Ltd and C&E v BAA plc and the dictionary definitions of "negotiation" and "mediation".

Decision

The primary issue for determination is the extent of the agency in terms of which the Appellant acted for its promoter customers.

In terms of Clause 2 of the standard ticket sale agreement the Appellant would act as agent for the sale of tickets (p148). As such it was obliged to account for the prices paid for tickets to the promoter. However, Clause 2 provides further that the Appellant may charge a "booking fee" over and above the price of the ticket. These sums belong to the Appellant. There is no obligation on it to account to the promoter for these as would be appropriate in the context of "agency".

The "box office" and telephone booking service maintained by the Appellant is extensive. The contractual relationship with the promoter does not require this. Its costs are not to be reimbursed by the promoter (as again would be appropriate in "agency"). In cross-examination Mr Sharkey agreed that the operators on the telephone service gave regularly information about the venue, parking and restaurant facilities, route information and directions, and information about supporting acts and other forthcoming events. This indicates a support and information service extending far and beyond even the matters referred to in paragraph 11 of the Statement of Case.

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 entertainments. Mr Sharkey spoke to the Appellant's objective as being "… to sell space for time at best price".

We note that the cost of this service as represented by the fee exceeds substantially the credit card charge on the transaction. In relation to the total proceeds received by the Appellant for this service the amount of "backcharges" is trifling. Significantly in our view the Appellant's telephonists (p246 et seq) described the fee as being in respect of "ordering over the telephone".

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. They should be viewed in the context of the VAT charging system as a unum quid including as one element the taking of credit card details, and that following on the view expressed in Card Protection Plan at para 30 viz:-

"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".

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.

Mr Tyre indicated candidly that he had to succeed on all aspects of his argument for the Appeal to be allowed. Therefore, given our conclusions in the preceding paragraphs, his argument must fail. However, in view of the detailed submissions made by both counsel in relation to the interpretation of Item 5 of Group 5 of Schedule 9 of the 1994 Act we consider it appropriate that we should venture our views on this further aspect.

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.

Mr Tyre urged us to adopt an interpretation which would include all participants in the "chain" however minor their involvement. In our view the actings of the Appellant do not fall happily within the sense of a "negotiation". It seems curious that, given the frequency and commonplace nature of what the Appellant did as a retailer, there is no more specific provision in the terms of Group 5 referring to it. This tends to suggest in our view that its inclusion was not intended.

While we consider that in relation to the agency issue the circumstances of Bookit Ltd are distinguishable (it acted as agent only for Odeon Cinemas, which had established it and only for a very restricted service of credit card handling: paragraph 76) we agree with the interpretation adopted in para 90 that the transmission of credit card information (there to Girobank) does not amount to a "negotiation" or an "intermediary service" for the purposes of Item 5 and Article 13(B)(d)(3) of the Sixth Directive.

For these reasons we do not consider that the sales of tickets by credit card fell within the exemption provided in Item 5 of Group 5 of Schedule 9 VATA 1994, and, therefore, we dismiss the Appeal.

Expenses

Mr Campbell asked us to reserve the matter of expenses in the event of the Appeal being dismissed. Accordingly leave is given to him to make an application for expenses if so advised or in default of agreement.

Finally, we would record our thanks to both counsel for the helpful way in which they presented their arguments.

MR KENNETH MURE, QC CHAIRMAN
RELEASE: 23 March 2005.

EDN/04/17