"transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts..." , and therefore, since under the Issuer and Acquirer Agreement FDR do the selfsame things, the services which it provides must fall to be treated as exempt supplies under the Article. Mr Paines submitted that this proposed read-across from a state of affairs in which the banks do all the relevant transactions themselves to one in which FDR act for them demands some little caution, if only because VAT is (elementarily) a tax on supplies made by A to B: and in the first state of affairs (where the banks do everything themselves) some relevant acts or steps may not be supplies at all because the bank will, as it were, be supplying to itself. But I will not at this stage anticipate the legal analysis which falls to be carried out in relation to FDR's activities; what FDR actually does has first to be carefully described. The account which follows concerns FDR's activities in a case where the credit card is used for retail purchases, FDR acts both for Issuer and Acquirer, and Issuer and Acquirer are separate banks. I have taken that state of affairs purely for clarity's sake. In fact the transactions in which FDR acts for both Issuer and Acquirer are in a minority; and the Issuer and Acquirer Agreement before the court is geared to the case where Issuer and Acquirer are the same. However nothing turns on these differences, and the correct application of the law to the facts most clearly appears upon the factual model which I have identified and will now describe. 13 In such a case FDR maintains two accounts, the cardholder account and the Merchant account, whose functions I will explain shortly. (There was much controversy in the course of argument as to their status, and I will come to that in due course.) It is convenient first to return to the purchase of the roll of curtain material, to see how far the situation differs from one where FDR is not involved. Where the Merchant executes the sale transaction manually, receiving the signed voucher from the cardholder, there is at the very first stage of the cycle of payments no difference: the Merchant takes the voucher to the High Street branch of the Acquirer's bank, by whom he is paid without intervention by FDR. However FDR is notified of the payment and then does two things. It posts the transaction to the Merchant account - as Mr Paines put it: that is, it makes an entry in that account to the credit of the Merchant in the relevant sum. And it causes a debit to be entered at the Acquirer bank's head office, and a corresponding credit at the High Street branch, so that the payment to the Merchant is, as it were, logged centrally. It will be appreciated that the Acquirer will have contracts with very many Merchants, with each of whom there may be very many transactions. All payments out to the Merchants must no doubt for efficiency's sake be shown in a central account. 14 The means by which FDR causes the parallel entries to be made in the local and central branches of the Acquirer involve the use of what are called BACS tapes. BACS is an automated clearing house. How it works is significant for the purpose of seeing how or whether Art.13B(d)(3) applies to the facts in this appeal: as I shall show, FDR also engages BACS at other important stages in the cycle of transactions in the case I am describing, and one of Mr Paines' central submissions is to the effect that when FDR "instructs" (as Mr Paines puts it) BACS to effect a transfer of funds, that is not a transfer by FDR for the purposes of Art.13B(d)(3). But I shall postpone the description I must give of BACS, as well as my treatment of Mr Paines' submission. It will be much clearer if at this stage I return to the curtain material. 15 Where the transaction in the shop is done electronically - that is, where the Merchant's shopkeeper swipes the card through a machine which produces a chit for the cardholder to sign - the position is as follows. The technology is such that the shopkeeper's swiping the card (a) notifies FDR of the transaction, and (b) seeks FDR's authorisation of the transaction. The message sent by the swipe does not go to the Acquirer bank at all; it goes only to FDR. FDR, then, has the function of authorising the transaction, which is effected by an exchange of automated messages through the machine. FDR no doubt obtains, or more likely already possesses, the necessary information from the Issuer; in any event given the numbers of transactions involved the movement of any such information is no doubt by electronic means. If the sale is then authorised, FDR posts the transaction to the Merchant's account. In addition FDR also provides for (I intend this expression as an entirely neutral form of words, given Mr Paines' argument as to BACS) BACS to effect a credit in the Merchant's own bank account, there being created a corresponding debit in the Acquirer's central accounts. Thus the Merchant is paid by the Acquirer. In the case where the transaction in the shop is effected electronically, the Acquirer, as opposed to FDR, has not had to do anything at all to arrive at that position. 16 The next stage involves payment by the Issuer to the Acquirer, just as in the notional case where FDR is not involved. In order to describe it properly it is necessary to say farewell to the customer in the shop buying the roll of curtain material, and to confront the reality, which is of course that there are thousands upon thousands such transactions every day. FDR enters, on the books that it maintains electronically, every claim of each of its Acquirer clients against an Issuer arising out of a credit card transaction, and every liability of an Issuer client to pay an Acquirer. There are also situations called "chargebacks", whose genesis it is unnecessary to describe, whereby an Issuer may have a claim against an Acquirer and vice versa . FDR proceeds to establish the net position of each client bank (Issuers and Acquirers) and the net amount needing to be transferred from or to that bank as the case may be. In the evidence and argument this has been called "netting-off", and is carried out on a "pooled" basis: that is, FDR acts as clearing house: compare the role of IATA in British Eagle v Air France[1975] 1 WLR 758 , to which the Tribunal was referred. That having been done, FDR makes a payment out of its own funds to each client bank which is a net claimant, and receives (later the same day) a payment from each client bank which is a net debtor. This is effected through the banking system by a mechanism called CHAPS. It is unnecessary to describe CHAPS because Mr Paines accepts that the payments made by FDR by means of it constitute, if viewed in isolation (and thereby hangs a different tale), "transfers" within the meaning of Art.13B(d)(3). Subject to error, the payments and receipts by FDR will be in balance. All this is done every working day. 17 Thus the accounts between Acquirers and Issuers are reconciled. The last stage in the cycle consists in the payment by cardholder to Issuer. FDR posts the debit to the cardholder account (to which it also posts credit entries, as where the cardholder pays his or her monthly bill). And where the cardholder pays by direct debit, FDR also provides for BACS to debit the cardholder's ordinary bank account, and credit the Issuer's account, with the relevant sum. Where there is no direct debit arrangement, FDR's role at this stage is limited to updating the cardholder account (for which it has all necessary information from the Issuer). 18 That completes the cycle of payments. But I should give some further details of FDR's activities undertaken in the course of performing their contracts with Issuer and Acquirer in the case I have been describing. First, the credit card itself: for some but not all of its Issuer clients FDR arranges for the card to be embossed with the cardholder's name and account number. Then FDR prepare and send to the cardholder periodic (typically monthly) statements of his indebtedness to the Issuer: that is, of course, a statement of the balance on the cardholder account. Enclosed with the mailing will be any promotional leaflets, circulars and so forth required to be included by the Issuer. 19 Then at the end of each month FDR will calculate the aggregate fee which the Merchant owes to the Acquirer by way of commission on transactions, and send a statement of the Merchant account to the Merchant. Ten 10 days after that they will make an entry in a BACS tape to effect an appropriate debit to the Merchant's bank account in favour of the Acquirer. Other Matters of Fact (1) Non-FDR Clients 20 Though I have chosen to describe the instance where Issuer and Acquirer are different banks but both clients of FDR, I should make it clear that on the evidence before the Tribunal that was by no means the commonest state of affairs. FDR had at the material time four clients who were both Issuers and Acquirers and a further 24 who were Issuers only. Mr Casey told the Tribunal that in March 1998 FDR's market share was 45% of the Issuer market and 27% of the Acquirer market. The Tribunal, on the basis of certain assumptions, concluded that of the overall Acquirer market 12% was constituted by transactions involving an FDR Issuer and an FDR Acquirer, 33% by transactions involving an FDR Issuer only, 15% by transactions involving an FDR Acquirer only, and 40% by transactions involving neither an FDR Issuer nor an FDR Acquirer (decision, paragraph 38). 21 Where an Issuer or Acquirer is not a client of FDR, it seems that it will belong to one of what are called the "payment systems" - MasterCard, Europay, Visa and Barclaycard. In that case there will be an account between the payment system and its Acquirer/Issuer client. FDR will only be involved if it acts for the Issuer where the Acquirer is a client of the payment system or vice versa . The principal effect on what is actually done by FDR relates to the netting-off process. This is how the Tribunal described that process in paragraph 55 of the decision: "...sums due to FDR Acquirers from a payments system are set against sums due from FDR issuers to the same system. This is not undertaken on a client by client basis but on a global payment system by payment system basis. FDR pays its Acquirer banks before this process is completed, recouping itself from the sums received on behalf of those clients from the payments systems. This type of set-off has a triple effect. It discharges the liability of FDR's Issuer client to the payment system, it discharges the liability of the payments system to FDR's Acquirer client and it reduces the amount of FDR's own money tied up in that system by reducing the CHAPS flow in each direction. The net payment from each system which is a net payer on each working day is received as a global payment by FDR on behalf of its various clients and the payments to each system which is a net recipient on each working day are made as a global amount..." 22 It is unnecessary to understand the operation of the payment systems in any greater detail, since, just as it is agreed between counsel that nothing turns for the purposes of the appeal upon the difference between the use of a card to obtain goods or services on the one hand and to obtain cash on the other, or on the distinction between a credit card and an account card, so also it is common ground that the presence or absence of the payment systems in part of the cycle of payments can make no difference to the tax treatment of FDR's activities. In short, therefore, it is irrelevant whether FDR acts for Issuer, Acquirer or (as in the case I have described) both. I should also notice that in the notional case which I first set out, that in which FDR acts neither for Issuer nor Acquirer, the reality would presumably be that both of them would be in account with a payment system. (2) BACS 23 As the Tribunal stated (paragraph 67) the BACS procedure is explained at paragraphs 548 to 565 of the Encyclopaedia of Banking Law. At 548 this appears: "
"... BACS receives the input data by 9 pm on the first day of a 3 day cycle, processes it overnight by 6 am on day two by which time it despatches credit and debit instructions to each member by telecommunications link or courier. Every instruction to credit an account is accompanied by an instruction to make a corresponding debit to the account from which payment is made. Individual magnetic tapes or discs are produced for each member, the members being banks or building societies. Once inter-bank clearing is complete the members' overall balances are adjusted accordingly at the Bank of England."
"FDR's tapes for a day will supply BACS with instructions to debit the account of each Acquirer and credit the accounts of its Merchant customers. BACS in effect breaks the instructions down to credit instructions for a large number of separate Merchant's accounts presumably consolidating these with instructions from other sources in respect of those accounts."
"In relation to both Issuers and Acquirers we find that the principal service provided by FDR consists of processing all their card transactions and settling their liabilities and claims under these transactions in accordance with the obligations of the Issuers and Acquirers."
"- the plaintiff performs the services only upon request from a member savings bank, one of such bank's customers or others who, by agreement with the customer, are authorized to requisition, for example, specific payments; - the request is made by the electronic transmission of information which may result in the immediate performance of a service or involve several successive services over a shorter or longer period; - a customer can only transmit information after authorization by the financial institution, for example in the form of the issue of a cash card or a credit card; - the plaintiff's name is not made known to the individual savings bank customers and the plaintiff has not entered into legal obligation towards them; - the plaintiff does not demand payment from the individual customers but only from its members; - the plaintiff's services are essentially performed wholly or in part electronically" . 31 The reference from the municipal court engaged Art.13B(d)(3) and (5) of the Sixth Directive. In considering what was SDC's correct tax treatment, it is plain that the Advocate General attached crucial significance to the fact that SDC had no legal links with any of the banks' customers (see for example paragraphs 49 and 50 of his Opinion). That was the basis, or at least a principal basis, for his view that the supplies made by SDC were not exempt (as appears from the answer he would have given to the referring court's second question: p.I-3039). The Court of Justice did not agree; however that did not confer outright success on SDC, since, unusually, the Court sent the case back for the municipal court to find further facts. We were told that the case was then settled between SDC and the Danish tax authorities, on terms which were at least relatively favourable to SDC; though I agree with Mr Paines that that circumstance is of no relevance to anything we have to decide. 32 Turning to the Court's judgment, I should first notice paragraph 20, where it was pointed out that "the terms used to describe the exemptions envisaged by art 13 of the Sixth Directive are to be interpreted strictly since these constitute exceptions to the general principle that turnover tax is to be levied on all services supplied for consideration by a taxable person" ; and paragraph 22, which is in these terms: "
"It must be stated in regard to this point that the specific manner in which the service is performed, electronically, automatically or manually, does not affect the application of the exemption. The provisions in question make no distinction in this regard. Accordingly, the mere fact that a service is performed entirely by electronic means does not in itself prevent the exemption from applying to that service. If, on the other hand, the service entails only technical and electronic assistance to the person performing the essential, specific functions for the transactions covered by art 13B(d)(3) and (5), it does not fulfil the conditions for exemption. That conclusion follows, however, from the nature of the service and not from the way in which it is performed." 33 Mr Paines lays particular emphasis on paragraphs 53 and 66 (whose context requires me also to set out paragraphs 61 - 65). Paragraph 53 appears in a section headed: "
"On this point, it must be noted first of all that a transfer is a transaction consisting of the execution of an order for the transfer of a sum of money from one bank account to another. It is characterised in particular by the fact that it involves a change in the legal and financial situation existing between the person giving the order and the recipient and between those parties and their respective banks and, in some cases, between the banks. Moreover, the transaction which produces this change is solely the transfer of funds between accounts, irrespective of its cause. Thus, a transfer being only a means of transmitting funds, the functional aspects are decisive for the purpose of determining whether a transaction constitutes a transfer for the purposes of the Sixth Directive."
" Transfers and payments 61. It is necessary to consider first of all whether the operations carried out by a data-handling centre such as SDC in the effecting of a transfer can in themselves be described as transactions concerning transfers within the meaning of art 13B(d)(3) of the Sixth Directive. 62. The Danish Ministry for Fiscal Affairs argues that the services provided by SDC are in fact composed of various administrative or technical components which are invoiced individually. No price is fixed in advance for the transfer, the transfer of funds or the services in their entirety. Consequently, the services provided by SDC are different from those covered by art 13B(d)(3) of the Sixth Directive. 63. SDC, on the other hand, states that, in order for the exemption to apply, it is not necessary for the services supplied to be complete services but it is sufficient that the supply in question should be an element of a financial service in which various operators participate and which, taken as a whole, constitutes a complete financial service. 64. Given this difference of view, it must be noted first of all that the wording of art 13B(d)(3) does not in principle preclude a transfer from being broken down into separate services which then constitute `transactions concerning transfers' within the meaning of that provision and which are invoiced by specifying the elements of those services. The invoicing is irrelevant for the application of the exemption in question, provided that the actions necessary for effecting the exempt transaction can be identified in relation to the other services. 65. However, since art 13B(d)(3) must be interpreted strictly, the mere fact that a constituent element is essential ( indispensable in the French text) for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt. The interpretation put forward by SDC cannot therefore be accepted. 66. In order to be characterised as exempt transactions for the purposes of art 13B(d)(3) and (5), the services provided by a data-handling centre must, viewed broadly ( apprecie de facon globale in the French), form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For `a transaction concerning transfers', the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre's responsibility vis-à-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions." 34 Mr Paines submits that a "transfer" is constituted by the execution of an instruction that the transfer should take place, and never merely by the instruction itself: paragraph 53. In line with this is his submission appearing at paragraph 28 of his skeleton argument: "...the distinction drawn by the ECJ in paragraphs 65 and 66 of the judgment is between a service which is indispensable for the performance of an exempt supply by another (which is insufficient for exemption) and a service which itself contains the essential elements of an exempt supply defined in article 13B(d) and thus is an exempt supply. It is only the latter service which qualifies for exemption. In particular, a `transaction concerning transfers' is one that has the effect of transferring funds."
"The issue is whether or not a completed payment had been made by the defendants to the plaintiffs on June 26... If there were no authorities on this point, I think that the reaction, both of a lawyer and a banker, would be to answer this question in the affirmative. I think that both would say two things. First, that in such circumstances a payment has been made if the payee's account is credited with the payment at the close of business on the value date, at any rate if it was credited intentionally and in good faith and not by error or fraud. Secondly, I think that they would say that if a payment requires to be made on a certain day by debiting a payor customer's account and crediting a payee's customer's account, then the position at the end of that day in fact and in law must be that this has either happened or not happened, but that the position cannot be left in the air. In my view both these propositions are correct in law. Kerr J proceeded to refer to Eyles v Ellis (1827) 4 Bing. 112. There Best CJ, delivering the judgment of the court, said (114): "... on the 8th a sum was actually placed to the plaintiff's account; and though no money was transferred in specie, that was an acknowledgement from the bankers that they had received the amount from Ellis. The plaintiff might then have drawn for it, and the bankers could not have refused his draft."
"The important feature of the case for present purposes is that the payment was held to be complete when the payee's bank account was credited and before the payee had had any notice that this had happened."
"Any account transfer must ultimately be achieved by means of two accounts held by different beneficiaries with the same institution. In a simple case the beneficiaries can be the immediate parties to the transfer. If Bankers Trust held an account with the A bank which was in credit to the extent of at least$131m ., and the Libyan Bank also held an account at the A bank, it would require only book entries to achieve an account transfer. But still no property is actually transferred . The obligation of Bankers Trust is extinguished, and the obligation of A bank to Bankers Trust extinguished or reduced; the obligation of A bank to the Libyan Bank is increased by the like amount. On occasion a method of account transfer which is even simpler may be used. If X Ltd. also hold an account with Bankers Trust London, and the Libyan Bank desire to benefit X Ltd., they instruct Bankers Trust to transfer$131m . to the account of X Ltd. The obligation of Bankers Trust to the Libyan Bank is extinguished once they decide to comply with the instruction, and their obligation to X Ltd. is increased by the like amount. That method of account transfer featured in Momm[1977] QB 790 . In a complex transaction at the other end of the scale there may be more than one tier of intermediaries, ending with a Federal Reserve Bank in the United States..." 37 The value of these statements (which have, according to counsel's researches, never been doubted) is that they show that, if one leaves aside transfers in specie (of coin, goods or other property), a transfer of money means no more nor less than the entry of a credit in the payee's account and the entry of a corresponding debit in the payor's account. There may be - will be - problems in cases of error or fraud in the posting of entries to the accounts. But however those may fall to be resolved, there is no further, elusive, event by which the money is really transferred: no Platonic Form, of which day-to-day transfers are only shadows. The pro and con entries constitute the transfer. There is nothing else. I recognise, of course, that this reasoning boils down the reality to the simplest case. In truth, creditor and debtor may have accounts at banks A and B respectively; banks A and B may themselves have accounts at banks C and D respectively; and it may be only when one comes to banks J and K that one finds both of them having accounts at the Bank of England. But the logic is unaffected. 38 If this reasoning is right it is, I think, very significant for a sensible and intelligent understanding of SDC . It demonstrates that what the Directive imports by the term "transfer" inheres in the notion of a "change in the legal and financial situation" - an expression used in both paragraphs 53 and 66 - where that is a reference to the effects of the corresponding credit and debit entries in the accounts of the paying and receiving parties. This is a point which in my judgment possesses particular resonance when one comes to counsel's submissions relating to "netting-off". 39 Now I may turn to the three areas to which I referred at the end of paragraph 34, in whose context the question of transfers by FDR falls to be considered. (a) Do FDR Make Transfers by Means of BACS? 40 I have already given an account of the BACS system (paragraphs 23 and 25). There are up to four (not four in every case) stages in FDR's activities where BACS may be deployed: (1) where the Acquirer's head office is debited, and its High Street branch credited, with a payment made out of the local branch to the Merchant's bank account (paragraph 14 above), (2) where (the purchase of the curtain material in the shop having been effected electronically) a credit entry is posted by BACS to the Merchant's bank account and a corresponding debit entry posted to the Acquirer's account (paragraph 15); (3) where the cardholder's ordinary bank account is debited with the amount which represents his payment (in full or part) of his monthly bill, and the Issuer's account is credited accordingly (paragraph 17); (4) where the Merchant's bank account is debited, and the Acquirer's credited, with an amount to represent the commission due from the former to the latter. 41 The Tribunal held, specifically in relation to (3) above (paragraph 186 of the decision): "
"The fact is that the daily netting off procedure involves an account being struck of the debits and credits of each client bank. The netting off procedure involves a credit in that daily account and in economic terms clearly involves both a payment and a transfer. In any event on any normal use of language the satisfaction of the Issuer's obligation to the payment system or the Acquirer is clearly a transaction involving the debt (or creance ) to which the creditor is entitled. It would be wholly illogical if netting off fell within point 3 when viewed from the creditor's side but not when viewed from the debtor's." 44 The pooled arrangements by which FDR net off the mutual liabilities of Issuers, Acquirers and payment systems were described by Mr Paines in his reply as amounting to no more than a "calculation"
"We accept Mr Cordara's submission that these are current accounts within point 3 and we consider the debits and credits to these accounts to be just as much transactions concerning current accounts as if the accounts were normal cheque accounts. They are accounts of the relationship between the cardholder and the Issuing bank, and indeed in relation to card transactions are the only such accounts. The cardholder will no doubt normally have a conventional account with the Issuer if the issuer is a clearing bank. But it does not follow that he will use that account to meet his liabilities under the card account... Payment from a normal cheque account to a card account is clearly a transfer involving a debit to the cheque account and a credit to the card account."
"26. By its first two questions, which should be taken together, the national court essentially asks, with reference to a plan such as that offered by CPP to its customers, what the appropriate criteria are for deciding, for VAT purposes, whether a transaction which comprises several elements is to be regarded as a single supply or as two or more distinct supplies to be assessed separately. 27. It must be borne in mind that the question of the extent of a transaction is of particular importance, for VAT purposes, both for identifying the place where the services are provided and for applying the rate of tax or, as in the present case, the exemption provisions in the Sixth Directive. In addition, having regard to the diversity of commercial operations, it is not possible to give exhaustive guidance on how to approach the problem correctly in all cases. 28. However, as the Court held in Faaborg-Gelting Linien v Finanzamt Flensburg[1996] STC 774 , paragraphs 12 to 14, concerning the classification of restaurant transactions, where the transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which that transaction takes place. 29. In this respect, taking into account, first, that it follows from Article 2(1) of the Sixth Directive that every supply of a service must normally be regarded as distinct and independent and, second, that a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer, being a typical consumer, with several distinct principal services or with a single service. 30. 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 (see Customs and Excise Commissioners v Madgett and Baldwin (Cases C-308/96 and C-94/97)[1998] STC 1189 , paragraph 24)."
"I consider that a service is ancillary if, first, it contributes to the proper performance of the principal service and, second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service." 52 I should also set out a passage from the judgment of Millett LJ as he then was in CCE v Wellington Private Hospital Ltd[1997] STC 445 , 462: "
"In relation to both Issuers and Acquirers we find that the principal service provided by FDR consists of processing all their card transactions and settling their liabilities and claims under these transactions in accordance with the obligations of the Issuers and Acquirers. This includes opening and maintaining accounts, authorising transactions, ascertaining the credits and debits and statementing. All of the above are either integral parts of the principal supply or necessary for its performance. We consider that card embossing for Issuers is ancillary to the principal supply having no independent aim or serving no independent purpose, but that the insert of circulars is not ancillary, except possibly in so far as the circulars themselves relate to card transactions. It may be that collection of vouchers is ancillary. The extent to which the provision of management information to FDR's clients is to be regarded as ancillary to card processing and settlement depends on the nature of the information; clearly if it is to identify prospects for a mail shot for other financial services it is not ancillary. If on the other hand information is to identify customers who are bad risks for card transactions, it may be ancillary. We accept Mr Cordara's submission that the purpose of the core service is the settlement of the credits and liabilities of FDR's clients. That is the clients' basic requirement in order to enable them to perform their obligations as Issuers `and where relevant as Acquirers."
"In order to consider whether the principal supply comes within the exemption, it is necessary to set out the ambit of that supply in somewhat more detail than in paragraph 163. It includes opening and maintaining accounts for each cardholder, responding to authorisation requests, recording all card transactions, calculating the total due from the Issuer each day, settling the amount due either by CHAPS transfers or by netting it off, providing the Issuer with details of all transactions, mailing statements to cardholders, raising direct debits for cardholders where relevant, recording payments by cardholders and sending cardholders' cheques to Issuers."
"Clearly many of the elements listed at paragraph 173 if considered in isolation would not come within the wording of point 3; however almost any exempt supply can be broken down into elements which would not be exempt if viewed in isolation. What matters is not the individual parts but the essential features of the whole. The issue is whether viewed broadly the principal supply forms a distinct whole which fulfils the specific, essential functions of a service described in the statutory exemption. It is clear from paragraph 66 that the essential functions do not all have to come within the same point of Article 13B(d) since paragraph 66 refers to a service described in both point 3 and point 5. Here we are only concerned with point 3. A fortiori, it is sufficient if some essential functions fall under "payment", some under "transfer", some under "debts" and so on."
"We conclude that the payment, netting off, account operating and direct debit activities performed by FDR for Issuers all fall within point 3. In our judgment those functions lie at the heart of the services performed by FDR."
"In our judgment the basic services supplied by FDR to Issuers fall within the exemption at point 3."
"We therefore allow the appeal in respect of the services which we have identified as included in the principal supply." 58 Mr Cordara submits that there is no error of law (and certainly no appealable error of fact) in the Tribunal's conclusions as to the core supply in paragraphs 163 and 173. Mr Paines did not in truth dissent; his argument was that it was unnecessary for him to seek to undermine the Tribunal's finding in the first sentence of paragraph 163, which was to no other or greater effect than that there was a single supply consisting of a number of elements which, by virtue of being treated as a single supply, would fall to receive the same tax treatment. That, however - and here was the submission's bite - did not determine what the tax treatment should be. 59 In my judgment Mr Paines was quite right, at least to this extent. On the Tribunal's findings this was a table-top case. That being so, it is not necessarily self-evident what the core supply's tax treatment should be: see paragraph 54 above. But what the tax treatment should be falls under Issue 3, with which I have yet to deal. 60 As to the nature or proper description of the core supply itself, I cannot see how the Tribunal's conclusion at the first sentence of paragraph 163 of the decision can, so far as it goes, be faulted. It was quintessentially a conclusion of fact, and there is nothing in the nature of a Wednesbury challenge conceivably available to undermine it. Mr Paines' argument amounted, rather, to an assault on the Tribunal's view as to what supplies were ancillary to the core. He said, correctly I think, that the Tribunal had identified five particular elements within the activities of FDR as being of special significance. They were (1) the netting-off procedure, (2) the maintenance and operation of the cardholder/Merchant accounts, (3) the use of BACS tapes, (4) the authorisation of transactions, and (5) the provision of regular statements of the cardholder and Merchant accounts. All five figure in the Tribunal's factual summary at paragraph 35 of the decision. As I have shown the Tribunal held that (1), (2) and (3) involved exempt supplies, as it were in their own right, because in each of them FDR executed transfers within Art.13B(d)(3). That I have dealt with under Issue (1); but it will be crucial for Issue (3) as well. However Mr Paines says also that the Tribunal was wrong to hold that activities (4) and (5) were ancillary or integral to FDR's core supply. The Tribunal plainly found them to be so in paragraphs 188 and 189. Mr Paines submits that the Tribunal there committed the very error warned against by Millett LJ in the opening sentences of the passage from Wellington Private Hospital which I have cited. 61 I do not consider this criticism to be justified. The potential error to which Lord Millett drew attention would arise where the court or tribunal starts by asking whether some particular element in what the taxpayer does is ancillary to the whole of his relevant activities, for that would be to beg the question whether the case falls to be treated as one of a single supply at all. That is not what the Tribunal did. Paragraph 188 opens with the words: "
"We hold also that the statementing both to cardholders and to Issuers is also part of the main supply or ancillary thereto."