Bookit Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 September 2014 |
| Neutral Citation | [2014] UKFTT 856 (TC) |
| Date | 01 September 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 856 (TC)
Judge Jonathan Cannan
Ross Slater, Solicitor, appeared for the Appellant
Elizabeth McIntyre, Officer of HMRC, appeared for the Respondents
Value added tax - Financial transactions - Exemption - Principal VAT Directive 2006/112/EC, eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d) - Card handling services - Nature of services - Whether transactions concerning payments - Scope of exemption - Questions to be referred to the ECJ for a preliminary ruling - Whether in any event to be excluded from exemption as debt collection - Abuse of rights.
The First-tier Tribunal considered an appeal by the taxpayer company against the decision of HMRC that its card handling services were not exempt from VAT. It decided to refer to the European Court of Justice (ECJ) for a preliminary ruling on the issue of whether the company's card handling services qualify for exemption in accordance with the 2006 VAT Directive, eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d).
The appellant, a wholly owned subsidiary of Odeon Cinemas Holdings Ltd, challenged four decisions of HMRC concerning the VAT treatment of credit and debit card handling fees charged by the appellant to customers making advance bookings at Odeon cinemas. The appellant contended that the supplies were exempt from VAT pursuant to eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d) as transactions concerning payments, excluding debt collection. HMRC argued that the card handling services were not exempt, that, in any event, the services were those of debt collection and that the circumstances in which the appellant was incorporated and carried on business made the arrangements abusive within the principles set out by the ECJ in Halifax plc v C & E CommrsECAS (Case C-255/02) [2006] BVC 377.
The appeal was against: a decision that card handling fees were not exempt from VAT; an assessment in the sum of £755,966 covering VAT periods 07/07 to 01/09; a decision refusing a claim for repayment of £1,296,041 in respect of card handling fees for the period 20 February 2010 to 30 April 2012; and a decision refusing a claim for repayment of VAT in the sum of £410,664 in respect of card handling fees for the period 1 February 2009 to 31 January 2010. The appellant had previously litigated the issue of exemption of card handling fees, having successfully argued in the Court of Appeal that the card handling fees then being charged were exempt from VAT (Bookit Ltd v R & C CommrsVAT[2006] BVC 605). The same issue arose in this appeal, albeit by reference to different facts.
The issues for the Tribunal were, firstly, whether the card handling fees charged by the appellant were "transactions concerning payments" in accordance with eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d) so as to fall within the scope of the exemption; secondly, if they were, whether the card handling services amounted to debt collection so as to be excluded from exemption and thirdly, whether, if the fees were exempt, the arrangements were contrary to the purpose of the 2006 VAT Directive and constituted an abuse of rights.
On the first issue, the appellant submitted that the decision of the Court of Appeal in 2006 remained good law and applied equally to the facts in this appeal. HMRC argued that the services provided by the appellant were merely preparatory to the payments and did not satisfy the requirements of eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d). They pointed out that there were factual differences between the appellant's arrangements and those considered in the earlier case. In any event, argued HMRC, subsequent case law had moved matters on since the Court of Appeal judgment. The Tribunal considered it appropriate to refer the matter to the ECJ for a preliminary ruling, with the precise scope of the questions to be determined with the assistance of the parties.
On the second issue of whether the card handling services amounted to debt collection and were, therefore, excluded from exemption, the appellant's principal submission was that its services were supplied to customers who were paying for their tickets and debt collection services could not be supplied to the debtors. The Tribunal accepted HMRC's submission that the exclusion from exemption does not refer to the identity of the party providing the service, but, nevertheless, it concluded that the appellant's services did not amount to debt collection.
The third issue of whether the arrangements were contrary to the purpose of the 2006 VAT Directive and constituted an abuse of rights would arise only if the services supplied by the appellant were found to be exempt and the matter did not need to be addressed at this hearing. However, the Tribunal held that, in its opinion, the arrangements put in place by Odeon made best fiscal use of the domestic legislation and were not contrary to the purposes of the directive. The Tribunal directed that reference would be made to the ECJ for a preliminary ruling as to the scope of the exemption under eu-directive 2006/112 subsec-or-para 1 article 135art. 135(1)(d), but, notwithstanding that reference, the appellant's card handling services did not fall within the exclusion from exemption for debt collection and the arrangements were not within the principle of abuse.
It seems likely that HMRC will welcome clarification of the VAT treatment of card handling services by the ECJ as there appears to be friction between the earlier Court of Appeal judgment and those of the European court in subsequent decided cases. HMRC would like to take the view that there is a single taxable booking service, with card handling representing an ancillary aspect enhancing the main service.
[1]Bookit Limited ("the appellant") appeals against four decisions of HM Revenue & Customs concerning the VAT treatment of certain supplies. The supplies in question are credit and debit card handling fees charged by the appellant to customers making advance bookings for cinema tickets at Odeon cinemas. The appellant contends that the supplies are exempt from VAT pursuant to eu-directive 2006/112 subsec-or-para 1 article 135article 135(1)(d) of Council Directive 2006/112/EC ("the Principal VAT Directive"). HMRC contend that the supplies are not exempt and should be standard rated. In the alternative, if the supplies would otherwise be exempt HMRC rely on an argument that the arrangements involving the appellant's supplies amount to an abuse of rights.
[2]The decisions under appeal are as follows:
(2) A decision dated 24 December 2009 that the card handling fees are not exempt from VAT,
(3) An assessment to VAT dated 20 January 2010 in the sum of £755,966 covering VAT periods 07/07 to 01/09.
(4) A decision dated 15 August 2012 refusing a claim for repayment of VAT in the sum of £1,296,041 in respect of card handling fees for the period 1 February 2010 to 30 April 2012.
(5) A decision dated 27 December 2012 refusing a claim for repayment of VAT in the sum of £410,664 in respect of card handling fees for the period 1 February 2009 to 31 January 2010.
[3]The appellant has previously litigated the issue of exemption of card handling fees. In 2006 it successfully argued in the Court of Appeal that the card handling fees then being charged were exempt from VAT - see Bookit Ltd v R & C CommrsVAT[2006] BVC 605 ("Bookit"). The same issue arises on the present appeal, albeit by reference to different facts as appears below.
[4]Article 135(1)(d) Principal VAT Directive exempts from VAT:
…transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection… (emphasis added)
[5]The issue on this appeal, as it was before the Court of Appeal in 2006, is whether a card handling fee is a "transaction concerning payment". If it is, and is therefore prima facie exempt, there is an issue as to whether it is excluded from exemption by virtue of being debt collection.
[6]The appellant is a wholly owned subsidiary of Odeon Cinemas Holdings Limited ("Odeon"). It is that fact, and the circumstances in which the appellant was incorporated and has carried on business, that gives rise to HMRC's assertion that even if the card handling fee is exempt, the arrangements are abusive within the principles set out by the Court of Justice in Halifax plc v C & E CommrsECAS (Case C-255/02) [2006] BVC 377. There are two limbs to the concept of abuse described by the ECJ at [74] and [75] as follows:
… in the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions ("the first limb");
Secondly, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. … the prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages ("the second limb").
[7]In this appeal the appellant accepts that the second limb of Halifax is satisfied. The appellant was 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 is whether the first limb is satisfied, namely whether the tax advantage accruing to the appellant is contrary to the purpose of the Principal VAT Directive.
[8]In the light of that brief background I can summarise the issues to be determined as follows:
(2) Are the card handling fees charged by the...
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