“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse: (a) insurance and reinsurance transactions, including related services performed by insurance brokers and agents; (b) ....... (c) ....... (d) the following transactions: (1) the granting and the negotiation of credit and the management of credit by the person granting it; (2) ..... (3) transaction[s], including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring; (4) ..... (5) transactions, including negotiation, excluding management and safe-keeping, in shares, interests in companies or associations, debentures or other securities, excluding ....” (a) insurance and reinsurance transactions, including related services performed by insurance brokers and agents; (b) ....... (c) ....... (d) the following transactions: (1) the granting and the negotiation of credit and the management of credit by the person granting it; (2) ..... (3) transaction[s], including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring; (4) ..... (5) transactions, including negotiation, excluding management and safe-keeping, in shares, interests in companies or associations, debentures or other securities, excluding ....”
“It follows that any exemptions, as exceptions to the general rule that VAT is levied on all economic activity, are to be interpreted strictly and must not exceed what is expressly and clearly provided for.”
“11. With regard to the exemptions provided for by the Sixth Directive, it is evident from the eleventh recital in its preamble that the exemptions constitute independent concepts of Community law which .... should be placed in the general context of the common system of VAT introduced by the Sixth Directive. ......... 13. It is clear from the foregoing that the terms used to specify the exemptions envisaged by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that turnover tax is levied on all services supplied for consideration by a taxable person. 14. Article 13(A)(1)(f) of the Sixth Directive makes express reference only to independent groups of persons supplying services to their members. .... Since the conditions for exemption are precisely formulated, any interpretation which broadens the scope of Article 13(A)(1)(f) of the Sixth Directive would be incompatible with the objective of that provision.”
“Where a given transaction, such as the letting of immovable property, which would be taxed on the basis of the rents paid, falls within the scope of an exemption provided for by the Sixth Directive, a change in the contractual relationship, such as termination of a lease for consideration, must also be regarded as falling within the scope of that exemption.”
“13. Although the exemptions provided for in Art. 13 are to be interpreted strictly (see [SUFA]), nevertheless, in the absence of any specification of the identity of the lender or the borrower, the expression ‘the granting and the negotiation of credit’ is in principle sufficiently broad to include credit granted by a supplier of goods in the form of deferral of payment. Contrary to the Commission’s view, the wording of that provision in no way suggests that there is any limitation on the scope of art.13B(d)(1) only to loans and credits granted by banking and financial institutions. 14. That interpretation is borne out by the objective of the common system introduced by the Sixth Directive, which aims in particular to secure equal treatment for taxable persons. That principle would be disregarded if a purchaser were to be taxed on credit granted by his supplier, whereas a purchaser seeking credit from a bank or another lender received an exempted credit.”
“16. .... That that is the approach to the construction of the phrase which we should adopt on this appeal is not, I think, in doubt. Unless the aims of the institute fall fairly within the phrase ‘aims of a civic nature’, supplies of services by the institute are not to be treated as exempt supplies for the purposes of VAT. It is not for this court to adopt a strained construction in order to fill what it may perceive to be a lacuna in exempting provisions in fiscal measures. It is for the legislature to decide whether there is an unintended lacuna, and (if so) whether, and how, that lacuna should be filled .... 17. It does not follow, however, that the court is required to give to the phrase ‘aims of a civic nature’ the most restricted, or most narrow, meaning that can be given to those words. A ‘strict’ construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption, so that if the court is left in doubt whether a fair interpretation of the words of the exemption covers the supplies in question, the claim to the exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question.”
‘(3)(a): Is it significant as far as the application of art. 13B(d) (3), (4) and (5) is concerned whether transactions are performed by financial institutions or by others? (b): Is it significant as far as the application of art. 13B(d) (3), (4) and (5) is concerned whether the entire financial service is performed by a financial institution which has links with a customer? (c): If it is unnecessary for the application of art.13B(d) (3), (4) and (5) that the financial institution itself should perform the entire service [as the ECJ in due course held that it was], can the financial institution buy in transactions wholly or in part from another person, with the effect that the services performed by that other person are covered by art. 13B(d) (3), (4) and (5), or may particular requirements be made of that person? (4): How is the wording used in art. 13B(d) (3), (4) and (5) ‘transactions .... concerning’ to be interpreted? This question seeks to ascertain whether the words ‘transactions .... concerning’ are to be understood as meaning that VAT exemption should also be granted in cases where a person either performs only a part of the service or performs only some of the transactions within the meaning of the directive which are necessary for supplying the complete financial service.’
“.... a comparison of the various language versions of point (3) of art. 13B(d) reveals that there are differences in terminology with regard to the phrase ‘transactions .... concerning’. In view of those linguistic differences, the scope of the phrase cannot be determined on the basis of an interpretation which is exclusively textual. In order to clarify its meaning, reference must therefore be made to the context in which the phrase occurs and consideration given to the structure of the Sixth Directive.....”
“It is sufficient to state in this regard that the argument put forward by the Danish [government] would be relevant only if a very broad interpretation of the concepts in question were adopted, without identifying the various components of the transactions involved. However, as pointed out in paragraph 20 above, such an interpretation is excluded....”
“.... whether points (3) and (5) of art. 13B(d) are to be interpreted as meaning that the exemption is subject to the condition that the transactions be effected by a certain type of institution, by a certain type of legal person or, in whole or in part, in a particular way.”
“31. As regards the first aspect, all the parties participating in the proceedings consider that it is not excluded a priori that persons other than certain financial institutions could effect the transactions exempted under art. 13B(d). These parties therefore agree that the decisive criterion for the exemption is the type of transaction effected. 32. The transactions exempted under points (3) and (5) of art. 13B(d) are defined according to the nature of the services provided and not according to the person supplying or receiving the services. Those provisions make no reference to that person.”
“45. It must first be pointed out in this regard that, according to settled case law on the concept of supply of services for consideration contained in point (1) of art 2 of the Sixth Directive, taxable transactions, within the framework of the VAT system, presuppose the existence of a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient .... 46. In the present case, most of the services provided by SDC involve no legal relationship between it and the end recipient, namely the customer of a member bank of SDC. In such a situation the legal relations which are formed are between the bank and SDC. 47. The services in point in the main proceedings are the services which SDC has performed for its own customers, namely the banks, and in return for which the banks have paid remuneration. Having regard to that relationship, the services which SDC provides to the customers of the banks are therefore significant only as descriptors and as parts of the services provided by that body to the banks. 48. As is clear from para 32 of this judgment, the identity of the provider of the service and the recipient does not affect the application of the provisions in question, except where they cover services which, by their nature, are provided to the customers of financial institutions. ....”
“53. 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. 54. In cases where the customer effects a transfer or causes a transfer to be effected without any action by the bank, the specific acts which constitute the transfer are carried out either by the data-handling centre and the customer or by the data-handling centre and a third party, the latter acting at the customer’s request, or by the data-handling centre acting alone pursuant to a standing order from the customer. 55. The contractual links between the bank and its customer do not diminish the role of the data-handling centre. It is from those links that the customer derives the right to have transactions effected, even if they are invoiced as services provided to the bank and also alter the bank’s financial situation. 56. Moreover, if point (3) of art. 13B(d) of the Sixth Directive covered only the service which a financial institution provides to the end customer, only certain acts concerning transfer transactions could be exempt. Such an interpretation would restrict the exemption in a way which is not supported by the wording of the provision in question. That wording does not restrict the exemption to that relation and it is sufficiently broad to include services provided by operators other than banks to persons other than their end customers. 57. It follows from the foregoing that an interpretation restricting the application of the exemption provided for by point (3) of art. 13B(d) to services provided directly to an end customer is unfounded. 58. As far as SDC’s other functions are concerned, its role in relations with the banks and end customers is comparable to its role in a transfer. Furthermore, the other exemptions provided for by points (3) and (5) of art. 13B(d) are, like the exemption for transfers, also defined according to the nature of the services provided and not according to the identity of the persons to whom they are provided. 59….. the exemption provided for by points (3) and (5) of article 13B(d) is not subject to the condition that the service be provided by an institution which has a legal relationship with the end customer. The fact that a transaction covered by those provisions is effected by a third party but appears to the end customer to be a service provided by the bank does not preclude exemption for the transaction.”
“64. Given this difference of view, it must be noted first of all that the working of point (3) of art. 13B(d) of the Sixth Directive 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 point (3) of art. 13B(d) of the Sixth Directive must be interpreted strictly, the mere fact that a constituent element is essential 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 points (3) and (5) of art. 13B[(d)], the services provided by a data-handling centre must, viewed broadly, 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 which is 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-a-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.”
“In view of all the foregoing considerations the reply to be given to the .... fourth question .... must be that this provision is to be interpreted as meaning that transactions concerning transfers and payments include operations carried out by a data-handling centre if those operations are distinct in character and are specific to, and essential for, the exempt transactions.”
“Conclusion In my judgment, the tribunal made no error of law in its construction of the exemption provisions in the Sixth Directive and in Sch 6 to the 1983 Act. It was entitled to conclude, on the facts found by it, that the services supplied by CSMA to FBS were exempt, because they could be properly regarded as ‘the negotiation of credit’ and as ‘the making of arrangements for any transaction for the granting of any credit’. Sedley J was right to reject the appeal of the commissioners. My reasons for following the same course as Sedley J are as follows: (1) It is common ground: (a) that FBS entered into exempt transactions granting credit in the form of credit cards to members of CSMA; but the exemption is not limited to a supply by the person granting credit; (b) that CSMA supplied services to FBS in connection with the granting of that credit to its members and, in consideration of those services, received a commission calculated by reference to the total amount of credit granted; and (c) that there is no express reference in either the Sixth Directive or in Sch 6 of the 1983 Act to ‘particular transactions or to the ‘specific’ grant of credit. (2) The critical question is whether the expressions ‘negotiation of credit’ and ‘making of arrangements for any transaction for granting of any credit’ are to be construed as implicitly restricted to activities in relation to particular transactions for the specific grant of credit. Neither the purpose nor the context of the exemption justify placing this restricted meaning on the wide general language of the directive and of the 1983 Act. Both the ‘negotiation of credit’ and ‘the making of arrangements’ for the granting of credit refer to the doing of things antecedent to, and directly leading to, the results sought to be achieved by the doing of those things. The result to be attained is of a general rather than a specific nature, namely the ‘granting of any credit’. In some cases intermediaries between principals will be involved in achieving that result. In other cases they will not. It is neither expressly nor impliedly necessary that they should be involved as a condition of the application of the exemption to those who do not actually grant credit. (3) The activities of CSMA, in respect of which FBS paid commission, can reasonably and sensibly be described as negotiation of, or making arrangements for any transaction for, the grant of credit. I am unable to detect either in the purpose of the exemptions or in the language and context in which they are expressed any distinction between (a) the negotiation, or making arrangements for particular transactions for the specific grant of any credit, and (b) these negotiations or arrangements planned and designed by joint efforts for the specific purpose of leading directly to the grant of credit by FBS to members of CSMA. (4) It is unnecessary to refer a question to the Court of Justice on the interpretation of the directive. Although the Court of Justice has not given a ruling on this particular point, the above interpretation of the Sixth Directive is accurately reflected in the provisions of the 1983 Act and is sufficiently clear to enable this appeal to be determined without the necessity of a reference under art 177. For all those reasons I would dismiss this appeal.”
“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 provision 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 A/S v Finanzamt Flensburg (Case C-231/94 )[1996] STC 774 at 783, [1996] ECR l-2395 at 2411-2412, paras 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 art 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 customer, with several distinct principal services or with a single service. 30. There is a single supply in particular 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 Comrs v Madgett and Baldwin (trading as Howden Court Hotel) (Joined cases C-308/96 and C-94/97)[1998] STC 1189 at 1206, para 24).”
“20. In the circumstances on the appeal there is only [one] question for your Lordships to decide. Do the arrangements made constitute a single supply with some ancillary services or are there two independent supplies, an exempt insurance supply and a non-exempt card registration service? 21. Although the tribunal heard oral evidence of the way the plan works it is plain that everything turns on the interpretation of the written arrangements in particular as set out in the 15 reasons. Thus although the tribunal came to one conclusion on this question, and was supported by the Court of Appeal, it seems to me that it is open as a matter of law for your Lordships to review afresh the scheme although in doing so I pay full regard to the views of the courts below. 22. It is clear from the Court of Justice’s judgment that the national court’s task is to have regard to the ‘essential features of the transaction’ to see whether it is ‘several distinct principal services’ or a single service and that what from an economic point of view is in reality a single service should not be ‘artificially split’. It seems that an overall view should be taken and over-zealous dissecting and analysis of particular clauses should be avoided. 23. I accept that it is possible, as Mr Paines QC, for the commissioners, has contended, to find that some of the 15 points if separated out and seen in isolation do not on the face of it provide for insurance as commonly understood. For example, point 1 provides only for an accurate computer record; point 6 provides for a change of address service; point 13 provides for a computer update service. 24. But there are some points which indisputably provide for insurance of the most obvious kind. Thus point 2 provides for£750 cover for fraudulent use on any one claim; point 3 provides for£750 cover up to the moment of the call to notify CPP: ‘(a)fter that your protection against fraudulent use is unlimited’. These points reflects [sic] the insurance provided in section A of the policy issued by Continental to CPP for which clients are assured. Others it seems to me fall within class 18, ‘Assistance’, in point A of the annex to EC Council Directive 73/239 as amended by EC Council Directive 86/641, eg points 4, 9, 10, 11 and 12, since it is clear that the service may consist of cash or acts in kind for the purposes of the Sixth Directive. 25. If one asks what is the essential feature of the scheme or its dominant purpose, perhaps why objectively people are likely to want to join it, I have no doubt it is to obtain a provision of insurance cover against loss arising from the misuse of credit cards or other documents. That is why CPP is obliged to, and does, arrange, through brokers, with an insurance company like Continental for that cover to be available. 26. For the loss to be kept to the minimum it is valuable that the client should be able to notify CPP of the loss of a card and that CPP should be able to notify the company issuing the credit card. It is particularly useful if the client is abroad. For this purpose CPP needs an up-to-date record of cards with the necessary details and the client needs a replacement card if cards are stolen or lost. To assist in the administration of the scheme, luggage tags and a medical warning card are useful. Yet all of these are ancillary or incidental to the main objective of the scheme ie financial protection against loss. The fact that the emergency cash advance and the cost of an emergency air ticket have to be reimbursed does not prevent those services from falling within ‘Assistance’ in class 18 in point A of the annex to EC Council Directive 73/239. They clearly fall within the Court of Justice’s definition of insurance. 27. The dominant purpose in my view is thus plainly one of insurance principally as to the provision of£750 and then of unlimited protection under points 2 and 3 but also in the other financial provisions such as those for dealing with seeking police help and pursuing claims in point 8. 28. In so far as there are services which are not independently to be categorised as insurance they are in my view ancillary and in some cases minor features of the plan. They were, as CPP contends, preconditions to the client making a claim for cash indemnity or assistance or a precondition of the furnishing of insurance cover. I doubt whether they can in any event be regarded as sufficiently coherent as to be treated as one separate supply but even if they can it is ancillary to the provision of insurance. To regard the provision of insurance as ancillary or subsidiary to the registration of credit card numbers is unreal and the consequences for the client of being able to take protective action with CPP with whom the cards are registered is closely linked to the insurance service. It is not possible to say that some elements of the transaction are ‘economically dissociable’ from the others (see EC Commission v. United Kingdom (Case 353/85)[1988] STC 251 , [1988] ECR 817. 29. I would therefore hold in response to para 32 of the Court of Justice’s judgment .... that the transaction performed by CPP for Dr Howell is to be regarded for VAT purposes as comprising a principal exempt insurance supply and the other supplies in the transaction are ancillary so that they are to be treated as exempt for VAT purposes. .....”
“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.”
“…. If the contractual authority conferred on CSC includes the powers needed to carry out, on behalf of Sun Alliance, any of those legal operations, I have no doubt whatsoever that they will be exempt from VAT. If, on the contrary, that is not the case – if its involvement is merely ancillary and preparatory to conclusion of those legal operations – then in my opinion the exemption does not extend to it.”
“…. The idea of ‘negotiating’ refers to ‘settling’, ‘giving way’ and ‘dealing’: in short, the idea of managing one’s own rights and interests in order to arrive at an agreement. The capacity to dispose of legal rights belongs only to the person vested with those rights or to his representative, either by operation of law (patria potestas or guardianship) or by agreement (power of attorney or other grant of representative capacity.”
“[t]he supply of a mere physical, technical or administrative service, which does not alter the legal or financial situation would not, therefore, appear to be covered by the exemption laid down in art. 13B(d)(5) of the Sixth Directive.”
“32. Lastly, the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt .... 33. It follows from the foregoing that the words ‘transactions in securities’ refer to transactions liable to create, alter or extinguish parties’ rights and obligations in respect of securities.”
“38. Clearly the words ‘including negotiation’ are not intended to define the principal object of the exemption laid down in the provision, but to extend the scope of the exemption to negotiation. 39. It is not necessary to consider the precise meaning of the word ‘negotiation’, which also appears in other provisions of the Sixth Directive, in particular, art. 13B(d) (1) – (4), in order to hold that, in the context of art. 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to anything other than the provision of contractual services typically undertaken by the parties to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract. 40. On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject-matter of the contract. In such a case, the sub-contractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question.”
“[29] Counsel for Customs & Excise submitted that Etherton J was wrong for four basic reasons, namely: (1) the decision of this court in CSMA cannot survive the decision of the Court of Justice in CSCand is distinguishable on its facts; (2) in CSC the Court of Justice did not provide any positive test by which to identify “negotiation of credit” and is distinguishable on its facts; (3) if and in so far as the decision of the Court of Justice in CSC did provide a positive test then the services of the negotiator must be independent of any of the parties to the grant of credit, different from the services typically undertaken by such parties and amount to a distinct act of mediation; (4) the nature of the services provided by BAAE [BAA’s subsidiary] should have been characterised as the sale of a customer list alone or coupled with the joint promotion and marketing of a financial product. [30] I do not accept that there is any relevant inconsistency between the decision of this court in CSMA and the decision of the Court of Justice in CSCwhen read in the light of their respective facts. I have quoted the material passages in paras 18 and 22 above. Both recognise that negotiation is an exercise preliminary to and connected with the relevant transaction. In both the negotiator was remunerated by commission. In neither is it suggested that the negotiator should be able to affect the terms of the relevant transaction. [31] It is true that the Court of Justice in CSC went further than this court in CSMAin excluding services typically provided by one or other party to the relevant transaction and in requiring a distinct act of mediation. But both that exclusion and that requirement are consistent with the actual decision of this court in CSMA. Similarly it is true that the description of the services of CSMA, in addition to those of an introducer, to which I have referred in paragraph 17 above cannot be used in connection with BAAE in this case; but it does not follow that the services of BAAE were not those of a negotiator. [32] I turn then to the second submission of counsel for Customs & Excise. I accept that the judgment of the Court of Justice in CSCdid not provide a precise and exhaustive definition of “negotiation”; that is what the court said in the first sentence of paragraph 39 ..... But it does not follow that the judgment does not provide a sufficient basis for determining whether, as a matter of fact, the services of BAAE were or were not those of a negotiator. On the contrary the specific inclusions and exclusions indicated in paragraphs 39 and 40 go a long way to providing a precise and exhaustive test yet leaving room thereafter to include or exclude the unforeseen. Plainly the facts in CSC are distinguishable from those in this case; but whether the distinction is material depends on the application of the test to which the Court of Justice referred. [33] The third submission of counsel for Customs & Excise imports a test of independence from either party to the transaction. This is warranted by paragraphs 39 and 40 of the judgment of the Court of Justice in CSC. Thus the negotiator must not be a party or a subcontractor of a party to the grant of credit. Nor must the services he provides be those typically provided by such a party or sub-contractor. But this submission leads nowhere. It is quite clear that BAAE is not a party to the grant of credit by the issue of the co-branded credit card. Nor are its services those typically provided by a bank or card-holder. Of course, there is a contractual relationship between BAAE and [the bank] and for some purposes, no doubt, it may be accurately described as a joint venture. What matters is not the relationship but the services rendered by BAAE thereunder. [34] Accordingly the outcome of this appeal rests on the fourth submission of counsel for Customs & Excise. How should those services be characterised? I do not accept that they amount to no more than the sale of BAAE’s relevant databases. On the contrary BAAE is required to do all the introductory work not to all those on its databases but only to those who comply with the conditions imposed by [the bank]. Nor can they be confined to the joint promotion and marketing of a financial product. The promotion and marketing is of the grant of credit which is the essential preliminary to obtaining any benefit under the BAAE Agreement by either party. [35] In my judgment Etherton J was correct to characterise the services of BAAE as the negotiation of credit within Article 13B(d)1 in the way that he did in paragraph 47 of his judgment. First, the First Schedule to the BAAE Agreement contains the details of the credit to be offered to an applicant by the issue of a card unless and until varied by [the bank]. Whether and to what extent it was the result of negotiation between BAAE and [the bank] is immaterial. The fact is that the introduction by BAAE of one of its members or customers to [the bank] is an introduction to a source of credit on terms agreed by BAAE and [the bank]. [36] Second, the introduction is preceded by screening processes carried out by BAAE so as to ensure that those whom BAAE introduces comply with [the bank] pre-conditions. Whether or not an application is accepted is a matter for [the bank] alone but the introduction is effected by BAAE. [37] Third, BAAE is remunerated by the commission payable by [the bank] in accordance with Clause 4 of the BAAE Agreement. This comprises a commission and an introduction and processing fee. The latter is payable, subject to certain conditions, in respect of each card account opened in a specified period. The former is an ongoing commission based on the value of the usage of the card. Thus the services of BAAE are remunerated by one party to the grant of credit as a distinct act of introduction or mediation. [38] Fourth, it is clear that BAAE is not itself a party to the grant of credit by [the bank] to a card-holder, nor is it a sub-contractor of such a party. The introductory services it performs are, by definition, not typical of the services performed by the grantor or grantee of credit. [39] The true analysis, in my judgment, is that BAAE provides access to some of its customers or members for [the bank] to supply them with credit on terms previously agreed between BAAE and [the bank]. Of course, each derives benefits from the transaction. Accordingly each is eager to promote the scheme and enlist the support of the other party for that purpose too. But all the benefits to be obtained by either party depend on the issue of the co-branded credit card. In those circumstances I agree with the parties in treating the services as composite. Equally the introductory services of BAAE without which the card is not issued and the benefits cannot be obtained seem to me to be properly characterised as “negotiation of credit” within the European concept denoted by that phrase as described by the Court of Justice in CSC.” ............. [55] It is clear from the judgment of the Court of Justice in CSCthat it did not consider that it was an essential element in “negotiation” that the negotiator should have the ability to alter the legal position as between the grantor and grantee of the credit. There is no trace of any such requirement in paragraphs 39 and 40 of the judgment of the Court of Justice ..... It follows that the decision of the Tribunalcontains a fundamental error of law and must be set aside unless their order can be justified on other grounds.”
“I therefore approach this matter on the basis that one should look at the package of supplies as a whole, and taking account of all the relevant circumstances seek to determine its predominant character. That may well involve, and probably usually would involve, considering a range of different factors. In a case such as the present it does, in my view, require one to consider the individual elements in the package, but at the same time it is necessary to take account of any evidence which may indicate the relative importance of each of those elements. At the end of the process it is necessary to stand back and to assess the predominant character of the package being supplied.”
“Viewed broadly and as a whole, what [EDS] did was to act as the representative of the Bank in the granting of loans; [EDS] had the authority of the Bank to act as the representative of the Bank and to dispose of the legal rights of the Bank in connection with the granting of loans. [EDS] bound the Bank to advance money to borrowers, and to accept repayments from borrowers, on terms set out in the loan agreements the details of which were agreed by [EDS] with the borrowers.”
“The ASM system did not make the decision to grant the loan and did not alter in any way the legal rights and obligations of the parties. It contributed merely one element of a total validation procedure which had a number of elements, including the verification of documents and earnings which were undertaken by [EDS]. It was [EDS] which altered the legal position by sending to the borrower the loan agreement (signed by [EDS] on behalf of the Bank) at which stage the borrower had an offer of a loan subject to conditions, and it was [EDS] which released the funds to the borrower which rendered the loan a ‘live loan’. We also consider it relevant that it was only [EDS] (and not the Bank) which dealt with the borrowers.”
“…. and so it follows that these words define that part of the exemption according to the nature of the service provided and not according to the person supplying the service. Thus, if the nature of the service provide[d] by [EDS] is the granting of credit, it does not appear to be relevant that the credit is supplied by the Bank.”
“In the present appeal the services supplied by [EDS] were the performance of the essential, specific function of the granting of credit and so fulfilled the conditions for exemption. The services supplied by [EDS] were not merely technical and electronic assistance to the Bank; further, it was not the Bank which performed the essential, specific functions of the granting of credit.”
“Applying those principles to the facts of the present appeal, even though the services of [EDS] are provided to the Bank, and are invoiced as services supplied to the Bank, it is as a result of the agreement between [EDS] and the Bank that the borrowers derived their rights to have the loans effected. The fact that the loans are made by the Bank to the borrowers, although effected by [EDS], and appear to the borrowers to be a service provided by the Bank, does not preclude exemption for the transactions carried out by [EDS].”
“In the present appeal the services of [EDS], viewed broadly and as a distinct whole, amounted to the granting of credit on behalf of the Bank as described in Article 13B(d)(1). The services of [EDS] had the direct effect of forming a contract of loan between each borrower and the Bank and releasing the funds of the Bank to the borrower. The services of [EDS] also entailed changes in the legal and financial situations of the Bank and the borrowers because, as a direct result of the services of [EDS], the loan contract was formed between the borrower and the Bank and the funds of the Bank were released by [EDS] to the borrower.”
“The principles enunciated by the Court of Justice in [SDC], applicable to Articles 13B(d)(3) and (5), appear equally applicable to the phrase ‘the granting and negotiation of credit’ in Article 13B(d)(1). In the light of that authority we would conclude that the services of [EDS] in the granting of credit are exempt.”
“Applying that principle to the facts of the present appeal the operation subject to tax which, under art 13B(d)(1) of the Sixth Directive is exempt, is the legal operation between the Bank and the borrower including the entering into the loan agreement, the issue of the contractual documentation, and the release of the funds. The contractual authority conferred on [EDS] includes the powers needed to carry out, on behalf of the Bank, all of those legal operations. It follows that they should be exempt from VAT. The involvement of [EDS] is not merely ancillary and preparatory to conclusion of those legal operations; the involvement of [EDS] is crucial and essential to the conclusion of those legal operations.”
“We find that decision to be of interest because the Court of Justice applied the analysis and principles enunciated in respect of Article 13B(d)(3) to Article 13B(d)(5) and that supports our view that a similar analysis should be applied to Article 13B(d)(1). When the services of [EDS] are viewed broadly, to form a distinct whole, they fulfil the specific, essential functions of a service described in Article 13B(d)(1). The services of [EDS] have the effect of the granting of credit and entail changes of a legal and financial nature. They are transactions which create and, on closure, extinguish the rights and obligations of the Bank and the borrowers in respect of the loans. The supplies of [EDS] are not merely the provision of routine, technical or electronic assistance such as the leasing of computers to the Bank, or the supply of cleaning services, or the supply of telephonic equipment, or a simple telephone answering service; on the contrary it is [EDS] who ‘issues’ the credit.”
“This authority confirms the view that the exemption for the negotiation of credit is not limited to a supply by the person granting the credit. If, contrary to our previous views, [EDS] is not granting credit, then the credit is granted by the Bank. However, the exemption for the negotiation of credit is not limited to a supply by the Bank or to specific grants of credit. The phrase includes actions antecedent to, and directly leading to, the grants of credit. In this appeal, all the actions done by [EDS] before a loan becomes a ‘live loan’ would be the negotiation of credit.”
“In the present appeal we are of the view that the activity of [EDS] does amount to the provision of contractual services typically undertaken by a lender. For that reason we regard the supply of [EDS] as rather being the granting of credit than the negotiation of it. However, if we are wrong about that then the supply of [EDS] is the negotiation of credit. It is a distinct act of mediation between the Bank and the borrower and does all that is necessary to enable the Bank and the borrower to enter into the contract of loan without [EDS] having any interest of its own in the terms of the loan. This is not a case of the Bank entrusting [EDS] with some of the clerical formalities only; the Bank entrusts [EDS] with the whole of the function of granting credit.”
“103. In the present appeal if [EDS] does not grant credit then it acts as an intermediary and its role is to procure the completion of, and negotiate the terms of, loan transactions of behalf of the Bank who is one of the parties to each loan. [EDS] communicates with the borrower and seeks to influence him to conclude a contract with the Bank. [EDS] performs distinct acts of mediation between the borrowers and the Bank. 104. Our conclusion on the first issue in the appeal is that the supplies made by [EDS] to the Bank under the 1988 and 1999 agreements were the granting of credit within the meaning of Article 13B(d)(1); however, if we are wrong about that then the supplies were the negotiation of credit within the meaning of the same Article. That means that the appeal is allowed and we do not need to consider the other issues. However, as arguments were put to us we briefly express our views.”
“However, if the supplies of [EDS] were not to be exempt under Article 13B(d)(1) then in our view they should be exempt under Article 13B(d)(3) as [EDS] carries out all the operations necessary for a complete exempt supply of a financial service.”
“However, we do not agree that the fact that [EDS] took little financial risk, and the fact that the relevant bank accounts were trust accounts, indicated that the commercial essence of what EDS did was not transfers and payments; neither do we agree that these arrangements had been put in place solely for the purposes of avoiding for value added tax. We find that the function of the trust accounts was to protect the Bank’s funds in the (unlikely) event of the insolvency of [EDS]. We also find that the facts that [EDS] took little financial risk, and that the accounts were trust accounts, does not alter our categorisation of the essential commercial activity of [EDS].”
“…. if [EDS] did not grant or negotiate credit, then it did undertake transactions concerning deposit and current accounts, payments, transfers and debts within the meaning of Article 13B(d)(3).”
“[n]ot only are they made under a separate agreement, for separate consideration, but they are made to a separate party.”