American Express Services Europe Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 August 2019 |
| Neutral Citation | [2019] UKFTT 548 (TC) |
| Date | 28 August 2019 |
| Court | First-tier Tribunal (Tax Chamber) |
[2019] UKFTT 548 (TC)
Judge Greg Sinfield, Mrs Janet Wilkins
Roderick Cordara QC and Andrew Legg, counsel, instructed by Ernst & Young LLP, appeared for the appellant
Peter Mantle, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Exempt supply of payment services – Whether services supplied to other party to contract for services – Whether contractual terms reflect economic reality of transactions – Appeal allowed.
The FTT upheld the company's appeal against HMRC's rejection of its claims for input tax. The appellant is the card issuer for the American Express group and makes exempt supplies to other group companies. The company argued that its customer was a non-EU American Express company and that, therefore, it could recover its input tax. HMRC's view was that its customer was one of the EU group companies. The FTT agreed with the appellant that it was supplying services to the non-EU company.
The appellant is the card issuer for the American Express corporate group and makes exempt supplies. The question before the FTT was which American Express company the appellant made supplies to. If its supplies were made to an EU company it could not recover input tax but if its supplies were made to a non-EU company it was entitled to recovery its input tax under art. 169(c) Directive 2006/112.
The FTT examined the contracts between the various parties in the American Express group and heard evidence from members of the senior management team.
When examining the evidence before it the FTT followed principles laid down in previous cases. These included the Supreme Court decision in Airtours Holidays Transport Ltd v R & C Commrs [2016] BVC 17, para. 47 of which states “when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts” (quoted at para. 10).
At para. 82 of the decision the FTT agreed with the Supreme Court in R & C Commrs v Aimia Coalition Loyalty UK Ltd (formerly known as Loyalty Management UK Ltd) [2013] BVC 282 where, at para. 67, Lord Reed states “Economic reality being what it is, commercial businesses do not usually pay suppliers unless they themselves are the recipient of the supply for which they are paying (even if it may involve the provision of goods or services to a third party), but that possibility cannot be excluded a priori.”
Having examined the contractual relationships between the parties, the FTT was satisfied that the non-EU company was the recipient of the appellant's services, and that the “economic and commercial reality of the transactions is entirely consistent with [this] analysis of the contracts” (para. 105).
Although the outcome of this appeal is dependent upon the FTT's analysis of a specific set of contracts, the process by which the FTT reached its decision is instructive for others whose supply chains are complex. The FTT looked first at the written contracts and then asked itself whether those contracts reflected the “economic and commercial reality” of the transactions.
[1] The Appellant (“AESEL”) is part of the American Express corporate group (“Amex Group”). AESEL is a card issuer, ie an entity that issues American Express cards to persons (“cardmembers”) who use them as a form of payment for goods and services subject to terms and conditions of use. In that role, AESEL made supplies of payment services. There was no dispute that AESEL supplied the payment services to another member of the Amex Group but the parties disagreed about which one of two other members of the Amex Group received the services supplied by AESEL.
[2] AESEL considered that it supplied the payment services to American Express Travel Related Services Company, Inc (“TRSCo”) which is established outside the European Union (“EU”). Accordingly, AESEL made claims for input tax credit in VAT accounting periods from December 2010 to December 2014. The amount of VAT in dispute is £57,633,216.
[3] In a decision dated 9 September 2015, the Respondents (“HMRC”) took the view that AESEL made its supplies of payment services to American Express Payment Services Limited (“AEPSL”) which, it was agreed, is established in the EU. Accordingly, HMRC refused AESEL's claim. AESEL now appeals against that decision.
[4] It was common ground that AESEL made supplies of payment services which were exempt under article 135(1)(d) of Council Directive 2006/112/EC (the “Principal VAT Directive” or “PVD”), which exempts, among other things, transactions concerning payments and transfers, in return for consideration. The consideration for those supplies was the “Issuer's Rate” (also referred to within the Amex Group as the “billing credit”).
[5] It was also common ground that, during the material time, AEPSL was established inside the EU and TRSCo was established outside the EU. The significance of the place of establishment of AEPSL and TRSCo is that if AESEL supplied the payment services to a customer established outside the EU then AESEL was entitled, under article 169(c) PVD, to credit for the input tax incurred on goods and services that were attributable to those supplies. However, if AESEL's services were supplied to a person established in the EU then AESEL was not entitled to credit for such input tax.
[6] The only issue in this appeal is whether AESEL supplied the payment services to TRSCo or to AEPSL.
[7] For reasons set out below, we have concluded that the payment services were supplied to TRSCo and, accordingly, AESEL's appeal is allowed.
[8] There is no guidance in the Principal VAT Directive or the Value Added Tax Act 1994 on how to determine who is the recipient of a supply. This may seem surprising when the issue of whether goods or services have been supplied to a particular person (or a person with particular characteristics) can be fundamental to the correct functioning of the VAT system. Where there is more than one potential recipient, such as in the case of tripartite or multi-party contracts, identifying who has been supplied may determine whether VAT is deductible or whether it is chargeable in the first place. Deciding who has received a supply is particularly problematic in the case of services because their intangible nature can make it difficult to identify to whom they are supplied where there a number of possible recipients.
[9] The importance of the issue of who has received a supply and the difficulties to which it gives rise have, unsurprisingly, led to a lot of litigation. Courts in the United Kingdom and Luxembourg have had to consider who received a supply on several occasions. Both parties referred to the following cases:
- R & C Commrs v Loyalty Management UK Ltd and Baxi Group Ltd (Joined Cases C-53/09 and C-55/09) [2011] BVC 1 (LMUK ECJ)
- R & C Commrs v Aimia Coalition Loyalty UK Ltd (formerly known as Loyalty Management UK Ltd) [2013] BVC 67 (LMUK SC)
- WHA Ltd v R & C Commrs [2013] BVC 155 (WHA)
- R & C Commrs v Newey (t/a Ocean Finance) (Case C-653/11) [2013] BVC 259 (Newey ECJ)
- R & C Commrs v Secret Hotels2 Ltd (formerly Med Hotels Ltd) [2014] BVC 9 (SH2)
- Airtours Holidays Transport Ltd v R & C Commrs [2016] BVC 17 (Airtours)
- U-Drive Ltd v R & C Commrs [2017] BVC 510, (U-Drive)
- Adecco UK Ltd v R & C Commrs [2017] BVC 509 (Adecco UT), confirmed on appeal [2018] BVC 39 (Adecco CA)
[10] In Adecco UT at [36], the Upper Tribunal expressed the view that “… it is not necessary to subject earlier authorities … to detailed examination when that task has already been so clearly and comprehensively carried out by Lord Neuberger [in Airtours].” Both parties referred us to what Lord Neuberger said at [47] of Airtours:
… in the subsequent case of [WHA] where at para 27, Lord Reed said that “[t]he contractual position is not conclusive of the taxable supplies being made as between the various participants in these arrangements, but it is the most useful starting point”. He then went on in paras 30 to 38 to analyse the series of transactions, and in para 39, he explained that the tribunal had concluded that “the reality is quite different” from that which the contractual documentation suggested. Effectively, Lord Reed agreed with this, and assessed the VAT consequences by reference to the reality. In other words, as I said in [SH2], para 35, when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.
[11] At [43] of Adecco UT, the Upper Tribunal observed that “… it is clear from Airtours that determining the nature of a supply and who is making and receiving it is a two-stage process”. The UT explained:
The starting point is to consider the contractual position and then consider whether the contractual analysis reflects the economic reality of the transaction. If, as a matter of contract, a party undertakes to provide services to another person in return for consideration from the other or a third party then there is, subject to the question of economic reality, a supply to the other person for VAT purposes. If the person who provides the consideration is not entitled under the contractual documentation to receive any services from the supplier then, unless the documentation does not reflect the economic reality, there is no supply to the payer. The contractual position normally reflects the economic reality of the transactions but will not do so where, in particular, the contractual terms constitute a purely...
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Ashtons Legal (A Partnership)
...that statement. [55] It was referred to in AIS at paragraph 40 and I agree with the analysis in American Express Services Europe Ltd [2019] TC 07342 (Judge Sinfield and Mrs Janet Wilkins), at paragraph 88:– [88] In paragraph 48 of Newey ECJ, the Court of Justice did not refer to all the mat......
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St George's University Ltd
...Training? [71] I considered the correct approach to determining who supplied what to whom in American Express Services Europe Ltd [2019] TC 07342 (“AESEL”) at [8]–[12] relying on the decision of the Upper Tribunal in Adecco UK Ltd v R & C Commrs [2017] BVC 509 (“Adecco UT”), confirmed on ap......
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Alternative Investment Strategies Ltd
...are not restricted to situations of artificiality or sham. In the First-tier Tribunal decision of American Express Services Europe Ltd [2019] TC 07342 (Judge Sinfield and Mrs Janet Wilkins), the point was explained as follows at [85] to [89]: [85] We do not accept that the absence of artifi......