Tax

Bookit Ltd v Revenue and Customs Commissioners: First-tier Tribunal (Tax Chamber): 1 September 2014

Exemptions – Transactions concerning payments – Taxpayer being wholly owned subsidiary of Odeon Cinemas Ltd (Odeon) – Taxpayer making supplies in form of credit and debit handling fees which it charged to Odeon customers

The taxpayer company was a wholly owned subsidiary of Odeon Cinemas Ltd (Odeon). Its income was derived solely from transactions involving Odeon group companies and customers visiting Odeon cinemas in respect of card-processing services provided to Odeon. It made supplies in the form of credit- and debit-handling fees which it charged to customers making advance bookings for cinema tickets at Odeon cinemas.

At all relevant times customers could be taken to be aware that they were entering into a separate agreement with the taxpayer for the supply of card-handling services in consideration of a card-handling fee. In December 2009, the Revenue and Customs Commissioners (the Revenue) decided that the card-handling fees were not exempt from VAT and should be standard rated (the December decision).

Following that decision, in January 2012, the Revenue issued an assessment to VAT covering VAT periods 07/07 to 01/09 (the January assessment). In August 2012, the Revenue again refused a claim by the taxpayer for repayment of VAT in respect of card-handling fees for the period 1 February 2010 to 30 April 2012, and in December 2012, the Revenue refused another claim for repayment of VAT in respect of card-handling fees for the period 1 February 2009 to 31 January 2010 (the August and December claims).

The taxpayer appealed to the First-tier Tribunal (Tax Chamber) against the December decision, the January assessment and the August and December claims. The taxpayer contended that the supplies were exempt from VAT pursuant to article 135(1)(d) of Council Directive (EC) 2006/112 (the Principal VAT Directive) on the basis that a card-handling fee was a ‘transaction concerning payment’ within that provision. In domestic law, that exemption had been introduced by Item 1 of Group 5 of Schedule 9 to the Value Added Tax Act 1994.

Note 1A provided that services preparatory to the carrying out of a transaction in Item 1 were not exempt. It was not suggested that for present purposes there was any material difference between the Principal VAT Directive and domestic law. The Revenue argued, in the alternative, that if the supplies would otherwise be exempt, arrangements involving the taxpayer’s supplies amounted to an abuse of rights within the principles set out in Halifax plc v Customs and Excise Commissioners: Case C-255/02 [2006] STC 919 (Halifax) on the basis that the essential aim of the transactions concerned was to obtain a tax advantage as set out in the second limb of Halifax.

The taxpayer accepted that the second limb of Halifax was satisfied. The taxpayer had been established with the essential aim of securing a tax advantage, namely the benefit of exemption on the card-handling fee. The issue in relation to abuse was whether the first limb was satisfied, namely whether the tax advantage accruing to the appellant was contrary to the purpose of the Principal VAT Directive.

In 2006, in Bookit Ltd v Revenue & Customs Commissioners [2006] STC 1367 (Bookit), the taxpayer had previously litigated the issue of exemption of card-handling fees. It had successfully argued in the Court of Appeal that the card-handling fees then being charged had been exempt from VAT. The same issue arose on the present appeal, albeit by reference to different facts.

Against that background the issues were, inter alia, first, whether the card-handling fees charged by the taxpayer were transactions concerning payments so as to fall within the scope of the exemption. In that respect, the taxpayer submitted that Bookit remained good law and applied to the present facts. The taxpayer contended that the services provided by the taxpayer had been merely preparatory to the payments and had not satisfied the requirements of article 135(1)(d) of the Principal VAT Directive.

Secondly, whether the card-handling services supplied by the taxpayer amounted to debt collection so as to be excluded from exemption (the debt collection issue). The taxpayer’s principal submission in relation to that issue was that the supply by the taxpayer of card-handling services had been made to customers who had been paying for their tickets. If there had been a debtor then it would be the customer and debt collection services could not be supplied to the debtor. It was clear that the creditor paid for the service of debt collection.

The Revenue invited the tribunal to make a reference to the Court of Justice of the European Union (CJEU) in relation to both issues.

The tribunal ruled: (1) In respect of the first issue, the scope of the exemption could not be identified with complete confidence.

It was not clear as a matter of principle what factors distinguished: (1) the provision of financial information without which a payment would not be made but which did not fall within the exemption, from (2) data handling services which functionally had the effect of transferring funds and which the CJEU had identified could fall within the scope of the exemption. Accordingly, questions should be referred to the CJEU for a preliminary ruling to as to the scope of the exemption under article 135(1)(d) of the Principal VAT Directive (see [112], [113], [116] of the decision).

Bookit Ltd v Revenue and Customs Comrs [2006] STC 1367 applied; Halifax plc v Customs and Excise Comrs: C-255/02 [2006] STC 919 considered; Sparekassernes Datacenter (SDC) v Skatterministeriet: C-2/95 [1997] STC 932 considered; CSC Financial Services Ltd v Customs and Excise Comrs: C-235/00 [2002] STC 57 considered; Customs and Excise Comrs v FDR Ltd [2000] STC 672 considered; Revenue and Customs Comrs v AXA UK plc [2008] STC 2091 considered; Everything Everywhere Ltd, formerly T-Mobile (UK) Ltd v Revenue and Customs Comrs: C-276/09 [2011] STC 316 considered; Proceedings brought by Nordea Pankki Suomi Oyj: C-350/10 [2011] STC 1956 considered; National Exhibition Centre Ltd v Revenue and Customs Comrs [2013] SWTI 2003 considered.

(2) Approving the FTT’s approach in respect of the debt collection issue, the services provided by the taxpayer to customers of Odeon did not amount to debt collection. It was accepted that the exclusion from exemption did not refer to the identity of the party providing the service.

However, the description of ‘debt collection’ necessarily implied collection on behalf of the creditor. In other words, it implied a service being provided to the creditor. The broad construction put forward by the Revenue was inconsistent with the language of the Directive. In the circumstances, the debt collection carve out did not apply to the card-handling services supplied by the taxpayer. In the light of that conclusion, no reference to the CJEU was required (see [126]-[129] of the decision).

Paymex Ltd v Revenue and Customs Comrs [2011] SFTD 1028 approved; DPAS Ltd v Revenue and Customs Comrs [2014] SWTI 385 approved; Revenue and Customs Comrs v AXA UK plc: C-175/09 [2010] STC 2825 considered.

Andrew Hitchmough QC and Zizhen Yang (instructed by Ashurst LLP) for the taxpayer; Kieron Beal QC and Alan Bates (instructed by the general counsel and solicitor for the Revenue and Customs Commissioners) for the Revenue.