On May 26, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑130/15 Commissioners for Her Majesty’s Revenue and Customs versus National Exhibition Centre Limited (ECLI:EU:C:2016:357).
The reference for a preliminary ruling concerns the interpretation of Article 13B(d)(3) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, ‘the Sixth Directive’).
Article 13B(d)(3) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the exemption from value added tax which is provided for in that article in respect of transactions concerning payments and transfers does not apply to a service described as ‘processing of payment by debit or credit card’, such as that at issue in the main proceedings, carried out by a taxable person, the provider of that service, where an individual buys, via that provider, a ticket for a show or other event which the provider sells in the name and on behalf of another entity, which that individual pays for by debit or credit card.
The dispute in the main proceedings and the questions referred for a preliminary ruling
· The NEC owns and operates the National Exhibition Centre and other venues in Birmingham (United Kingdom) which are used to stage trade and public exhibitions, sporting events, concerts and other events. It hires its venues to third party promoters and sells tickets for those events. It does not at any time take ownership of the tickets as the agent for those promoters. The tickets can be bought from the NEC’s call centre, via its website, by post or over the counter.
· During the relevant period, from 1 August 1999 to 30 April 2002, when customers bought tickets for events taking place in NEC venues and paid by debit card in the case of remote payment, or by credit card in all cases, NEC invoiced them, in addition to the price of the tickets, for a ‘booking fee’ which increased the price by about 10%, or even more for certain events. NEC refunded the event promoter the part of the amount paid by the customer corresponding to the ticket price and kept the amount corresponding to the booking fee.
· The Upper Tribunal (Tax and Chancery Chamber) notes that, in practice, the purchase of a ticket paid for by debit or credit card, for example by telephone, takes place as follows. After confirming the availability of the ticket sought by the customer, NEC informs the customer of the ticket price and the booking fee and other applicable fees, takes that customer’s details and the information concerning his payment card, such as the card number, the authorisation code on the back of the card and its expiry date, and transfers those details from its computer programme for checking the availability of places to its computer programme ‘allowing the secure movement of data for electronic funds transfers’. By means of that programme, NEC passes that information to its merchant acquirer bank which in turn forwards the information to the cardholder’s bank, the ‘card issuer’. If the card issuer accepts the transaction, it sends back an authorisation code to NEC via the merchant acquirer bank. Once that code is received, NEC informs the customer that the operation has been authorised and allocates the ticket to him.
· By means of the same computer programme allowing the secure movement of data for electronic funds transfers, each day NEC creates a file of all the card transactions that have taken place, including, inter alia, the amount of the payment, the card number and the authorisation codes and, at the end of the day, it sends that file to the relevant card issuers via the merchant acquirer bank. Once those files are received by the card issuers, payment — corresponding to the price of the ticket plus the booking fee and other fees after deduction of the commission charged to NEC by its merchant acquirer bank — is made to NEC’s account, once more via the merchant acquirer bank. NEC then holds the amounts paid for the tickets in its capacity as agent for the relevant promoter and holds the booking fees and other fees for itself, and the relevant tickets are issued and sent to the customer.
· On 27 November 2002, the NEC claimed a VAT repayment on the basis that it considered that it had overpaid in respect of the booking fees charged to customers during the period from 1 August 1999 to 30 April 2002. By a decision of 27 February 2003, the tax authority refused that claim on the basis that those fees charged by NEC were consideration for supplies that were subject to VAT at the standard rate.
· On 27 February 2003, the NEC lodged an appeal against that decision before the First-tier Tribunal (Tax Chamber). By a decision of 7 May 2013, that tribunal held, first, that the booking fees charged by the NEC corresponded to a debit or credit card processing service (‘the card processing service’) and, secondly, that those booking fees were exempt from VAT on the basis that they were consideration for an exempt financial service under Article 13B(d)(3) of the Sixth Directive.
· The tax authority appealed to the Upper Tribunal (Tax and Chancery Chamber) against that decision, contending that the NEC did not supply a card processing service to its customers and that, in any event, the supply made by the NEC did not fall within the exemption provided for in Article 13B(d)(3) of the Sixth Directive. That supply did not consist, or at least not principally, in the performance of a service that possesses the essential characteristics that were identified by the Court of Justice in its judgment of 5 June 1997 in SDC (C‑2/95, EU:C:1997:278). Alternatively, in any event, it came within the concept of ‘debt recovery’, an activity expressly excluded from the benefit of that exemption.
· The NEC maintains, on the other hand, that when it takes debit or credit card details from a customer, seeks authorisation for the payment from the card issuer, confirms payment by the customer for the benefit of the promoter once authorisation is received, and then creates a file containing daily transaction details which is sent via the merchant acquirer to the card-issuing bank on the basis of which payment is automatically made, it is debiting one account and crediting another, and accordingly performing an exempt transaction within the meaning of Article 13B(d)(3) of the Sixth Directive. In any event, the concept of ‘debt collection’ does not apply to that supply, that concept not extending to services provided to debtors.
· On 20 January 2015, the referring court dismissed the appeal brought by the tax authority in so far as it related to the issue of the nature of the supply made by NEC. In relation to the exemption issue, that court states that, in the light of the arguments which were presented before it and the case-law of the Court of Justice, it questions whether it is possible to apply the exemption under Article 13B(d)(3) of the Sixth Directive for ‘transactions ... concerning ... payments, transfers’ to a card processing service of the kind at issue before it.
· In those circumstances, the Upper Tribunal (Tax and Chancery Chamber) decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:
(1) With regard to the exemption from VAT in Article 13B(d)(3) of the [Sixth Directive] as interpreted by the Court of Justice in the judgment of 5 June 1997 in SDC (C‑2/95, EU:C:1997:278), what are the relevant principles to be applied for determining whether or not a service has “the effect of transferring funds and entail[s] changes in the legal and financial situation” within the meaning of paragraph 66 of that judgment? In particular:
(a) Is the exemption applicable to a service, such as that performed by the taxpayer in the present case, which does not involve the taxpayer debiting or crediting any accounts over which it has control, but which is, where a transfer of funds results, the cause of a transfer of funds made by an independent financial institution?
(b) In a case where payment is made by credit or debit card, does the answer to Question [a] depend on whether the service provider itself obtains authorisation codes directly from the cardholder’s bank, or alternatively obtains those codes via its merchant acquirer bank?
(c) What factors distinguish (i) a service which consists in the provision of financial information without which a payment would not be made but which do not fall within the exemption [such as in the judgment of 28 July 2011 in Nordea Pankki Suomi (C‑350/10, EU:C:2011:532), from (ii) a data handling service which functionally has the effect of transferring funds and which the Court of Justice has identified as therefore being capable of falling within the exemption [such as in the judgment of 5 June 1997 in SDC(C‑2/95, EU:C:1997:278) at paragraph 66]?
(2) What are the relevant principles to be applied for determining whether or not a service such as that performed by the taxpayer in the present case falls within the scope of the “debt collection” exclusion from the exemption in Article 13B(d)(3) of the Sixth Directive? In particular, if a service of processing payment by a particular method (e.g. debit or credit card) would, pursuant to the principles in the judgment of 28 October 2010 in Axa UK (C‑175/09, EU:C:2010:646), constitute “debt collection” in circumstances where the supply of that service was to the person to whom that payment was due (i.e. the person receiving the payment), will that service also constitute “debt collection” in circumstances where the supply of that service is to the person from whom the payment is due (i.e. the person making the payment)? Further, in the circumstances of this case, does a “debt” even exist to be “collected”?
The CJEU judged as follows:
Article 13B(d)(3) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the exemption from value added tax which is provided for in that article in respect of transactions concerning payments and transfers does not apply to a service described as ‘processing of payment by debit or credit card’, such as that at issue in the main proceedings, carried out by a taxable person, the provider of that service, where an individual buys, via that provider, a ticket for a show or other event which the provider sells in the name and on behalf of another entity, which that individual pays for by debit or credit card.
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