“I am writing to inform you of a change to Odeon’s business intended to take place from1 January 2002 which will require us to register a new company for VAT. In addition, I should like your written confirmation that that we have understood the VAT implications arising from this change . . . At present advanced booking income (telephone and internet booking) accounts for around 5% of Odeon’s ticket sales. Until recently ticket sales have almost exclusively been made on a cinema by cinema basis. Within the next three years we expect advance booking income to increase at an exponential rate. With this in mind we have decided to rationalise the way that advance bookings are handled through a separate company, Odeon Booking Company (‘OBC’) to manage these activities. OBC’s main business activities will be as follows: (i) developing and exploiting new routes to market such as interactive TV, WAP and maximising online booking; (ii) charging customers a fee for processing credit and debit cards payments, and (iii) obtaining income from telecoms providers that operate 0870 prefix premium rate booking services. . . . OBC will account for VAT on the income it receives from telecom companies as a payment of the 0870 prefix premium rate booking line. The company will also make standard rated supplies to Odeon Ltd comprising of services aimed at developing new routes to market and answering general public enquiries. OBC will also earn revenue by charging customers 50 pence per ticket for processing credit/debit card payments. It is my understanding that the fee OBC will receive for accepting credit/debit card payments will be exempt from VAT under Item 5, Group 5, Schedule 9VAT Act 1994 . This accords with Business Brief 17/98 in which Customs state that where an agent acting for the supplier of goods or services, makes a charge to the customer for accepting payment, Customs consider that the charge is for the separate supply of an exempt service. OBC will as a result treat the booking fee as VAT exempt. We understand that as a consequence of this OBC will not be entitled to recover any VAT on the costs that are attributable to the supply of payment processing to the customer. Can you please confirm in writing that our understanding is correct . . . ?”
“From the information provided in correspondence and enclosed agreements, it is apparent that Bookit are in fact providing a package of supplies to the customer, namely; 1. Checking availability of seats at requested screening; 2. Taking card details from customer and transmitting to Girobank for processing; and 3. Sending notification to Odeon’s computer system that those seats are taken. The great difficulty with a package of supplies is determining whether they should be regarded as single or multiple supplies, whether the package should be regarded as and if so, which part of the package is the predominant supply and what VAT liability should be attached to that predominant supply, or whether there are three separate supplies, each with their own VAT liability. Fortunately, a recent European Court of Justice case, Card Protection Plan, gave clearer guidelines on how to determine whether a supply should be regarded as single or multiple. The main focus was on determining the essential feature of a transaction and whether other aspects could be considered ancillary to it. Generally, something is considered ancillary if it is not an aim in its own right, but a better means of enjoying the main supply. In applying this test to the services supplied by Bookit, it is apparent that the only reason a customer would contact Bookit is because they wish to reserve a seat at a particular cinema screening in advance by phone/website etc. Upon completion of the transaction, the customer has received those reserved seats and been charged a consideration of 50 pence per ticket. This consideration is in addition to the normal ticket price for admission, which, as you argue, is supplied by Odeon. It is possible to visit an Odeon cinema in person and purchase tickets in advance and, in these circumstances, Bookit are not involved in the transaction. Odeon is thus providing admission to the cinema in its own right to the customer. Bookit are supplying a separate service to the customer for which they receive the 50p per ticket consideration. The essential nature of this service is of booking reserved seats to customers. The taking of the credit or debit card details is not an aim of the customer in itself, but part of the process of obtaining enjoyment of the reserved seat in the cinema. The principal service is thus the booking service and the taking of the credit card details is ancillary to this. Conclusion Bookit are making a single supply of cinema seat booking services to the customer. The consideration is the 50p booking fee paid by the customer. The booking fee does not feature in the zero rate, reduced rate or exempt schedules, and must therefore be regarded as a standard rated supply for VAT purposes. This letter constitutes a decision of the Commissioners. . . .”
“1 The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money. . . . 5 The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity.”
“2 The making of any advance or the granting of any credit.”
“13B 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: . . . (d) the following transactions: 1. the granting and the negotiation of credit and the management of credit by the person granting it; . . . 3. transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring; . . .”
“1. This letter seeks to more fully set out the relationship between Odeon Limited (Odeon) and Bookit Limited (Bookit) as created by the Ticket Sales and Credit Card handling Agreement dated29 March 2002 . 2. Odeon is a company providing cinema services to members of the public. Bookit is a separate card handling company that develops and exploits new routes to market such as interactive TV, WAP and Internet. 3. Odeon sells cinema tickets to members of the public who will either book in advance (for example by telephone or internet) (‘Advanced Card Transactions’), or will buy tickets at the relevant cinema before the performance (‘Card Transactions’). 4. Bookit has agreed with Odeon that it shall provide certain services in respect of the sales of cinema tickets. 5. It is understood that Bookit shall provide debit and credit card handling services in respect of Advanced Card Transactions, to Odeon’s customers (as defined in the Agreement dated29 March 2002 ). 6. It is further understood that Bookit shall additionally be responsible for the provision of information, data processing services, credit management services and the maintenance of records relating to Card Transactions data (but not Advanced Card Transactions) to Odeon. 7. Bookit and Odeon have agreed that their obligations in respect of cinema ticket sales as described above will be restricted to the terms of the Ticket Sales and Credit Card handling Agreement dated29 March 2002 .”
“Ticket sales and credit card handling Agreement At the time of entering into the ‘Letter of Understanding’ the agreement all parties had in mind for the provision of card handling services was to have been known as the ‘Ticket Sales & Credit Card Handling Agreement’. Following negotiations this draft Agreement has since been superseded by the Merchant Services Agreement between Odeon Ltd, Bookit Ltd and Girobank plc and a Services Agreement between Bookit Ltd and Odeon Ltd. The Services Agreement provides greater detail on the contractual relationship between Bookit and Odeon for the provision of various data processing and storage services in relation to card transactions carried out in Odeon auditoriums. . . .”
“A. Girobank is a member of the MasterCard, Visa and Switch card schemes and is authorised under the regulations governing membership of these schemes to acquire data in respect of all MasterCard, Visa and Switch transactions from merchants who have signed a Girobank Merchant Agreement. B. This Agreement sets out the terms on which Odeon Ltd will accept agreed financial plastic cards as a means of payment for cinema tickets, and on which card transactions will be authorised by and presented by Odeon to Bookit, and by Bookit to Girobank C This Agreement will have effect from1 February 2002 .”
“‘Advanced Card Transaction’ means any advance payment made by telephone, internet or other such media by the Cardholder for debit to the Cardholder’s account in respect of the Card in question including, for the avoidance of doubt, both sums payable to Odeon for Supplies and any Handling Fee payable by the Cardholder to Bookit.” “‘Card Transaction’ means any payment (other than an Advanced Card Transaction) made by the Cardholder for debit to the Cardholder's account in respect of the Card in question including sums payable to Odeon for Supplies.”
“3.1 Girobank shall: 3.1.1 credit Bookit with the amount of all Card Transactions and Advanced Card Transactions effected by Odeon and in respect of which the relevant Card Transaction Data is presented to Girobank in accordance with the terms of this Agreement by crediting a Girobank account within the United Kingdom, nominated by Bookit or such other account as may be agreed between the parties; and 3.1.2 . . . 3.2 For the avoidance of doubt, Girobank's payments are made to Bookit for and on its own account and Girobank shall be under no obligation to make any payment to Odeon under this Clause 3. . . . 3.6 Subject to Clause 3.7, Girobank shall use reasonable endeavours within one Banking day of receipt of a credit into Bookit's Girobank account under Clause 3.1.1, to transfer such credit by BACS transfer to any bank account within the United Kingdom nominated by Bookit, or such other account as may be agreed between the parties.”
“The commercial reality is that there is a single composite supply of advance booking services. This includes checking the availability of seats for the customer, taking the card details and transmitting them to Girobank, and notifying both the customer and Odeon that the seats are taken. The taking of the card details is part of the principal booking service”
“The issue is therefore whether Bookit is also providing intermediary services to customers and acting in an intermediary capacity within item 5 when read with Notes (5) and (5A) or alternatively whether Bookit itself is making supplies to customers consisting of dealing with money within item 1”
“81. The actual components of the supply by Bookit to the customer are . . . limited to obtaining the card information with the necessary security information and transmitting this to Girobank. It does not even include any decision by Bookit whether to transmit that information, since in deciding whether to accept a payment by card not requiring authorisation from Girobank Bookit is not performing a service for the customer but is acting as agent for Odeon.”
“Here we are concerned with transactions concerning payments or transfers”
“32 …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.”
“Logically transactions concerning payments must also entail changes of a legal and financial character. ”
“85 The mere transmission of details to Girobank is essential to the completion of the transfer or payment by Girobank or the issuer, but that does not bring Bookit within item 1. The Appellant company has not satisfied us on the evidence that Bookit in transmitting on behalf of customers the required card information is itself transferring funds or bringing about changes of a legal and financial character. The transfers and financial changes are effected by Girobank and the payments are effected by the bank issuing the card.”
“39 … 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 of 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.”
“5. At 1.30am in the morning following the booking all Bookit's card transactions are batched together on Bookit's computer system. These batched transactions are then sorted down by reference to the separate card issuing banks ("the Card Issuers") and the details are transmitted on a secure line to each relevant Card Issuer to seek authorisation for the transactions. 6. The Card Issuers apply their own criteria and issue a code for each transaction denoting that it is authorised or rejected. When authorisation is refused the reason is notified, for example, ‘wrong expiry date’, ‘out of funds’, ‘account closed’ or ‘card stolen’. If the reason is ‘out of funds’, Bookit may present the transaction again on the next day in the hope that this time there will be sufficient funds. 7. Bookit then collates the authorised transactions for transmission to Girobank delivering them in a single file by secure line still in the early hours of the morning following the booking. At this point no sums have been debited to customers' accounts with Card Issuers and no sum has been credited to Bookit. 8. Within 1 to 2 days Girobank credits Bookit with the sum for the tickets plus card handling fees debiting the Card issuer which in turn debits the account of the particular customer. In the event that the customer’s bank rejects the debit, for example because the account is in overdraft, then Girobank re-credits the Card Issuer and charges back the debit to Bookit. 9. By obtaining authorisations from Card Issuers Bookit was able to negotiate lower charges by Girobank. . . .”
“10. . . . in that they omitted the obtaining by Bookit of authorisation from Card Issuers, which is separate from the prior authorisation required from Girobank where the specified limit or ‘Floor Limit’ is exceeded, and the transmission of the Card Issuers' authorisations to Girobank”
“11. . . . the obtaining and transmitting of the authorisation is the key step by which a change of a legal and financial character (i.e. payment) is made, so bringing Bookit within item 1 [of Group 5]”
“12. Our conclusion in paragraph 85 remains the same. While the transmission of the authorisation is an essential step, it does not itself bring about the payments or transfers. These are effected by Girobank.”
“[5]. . . . There are four parties to the relevant series of events, namely (1) the Customer, (2) Girobank plc, (3) Bookit and (4) Odeon. In a typical transaction there are the following steps: 1. The Customer contacts Bookit by, say, telephone to ask if there are any seats available for a particular film in a particular cinema at a particular time on a particular day. 2. Bookit checks such availability with Odeon. 3. Odeon confirms to Bookit the availability of the required seats. 4. Bookit informs the Customer of such availability, the cost of the tickets and that it will make an additional charge for handling payment by debit or credit card. 5. Bookit takes the Customer's card details (‘payment information’) and verifies its right to use the card ("security information"). 6. Bookit transmits the payment information and security information to Girobank. 7. Girobank processes the payment for the seats by means of the Customer's debit or credit card and credits Bookit with the aggregate of the price for the seats and the card handling charge. 8. Bookit confirms the purchase of the tickets to Odeon. 9. Bookit confirms the booking and payment to the Customer and informs him that the tickets may be collected from the relevant cinema. 10. The Customer collects the tickets. 11. Odeon admits the Customer to the relevant showing. 12. Bookit accounts to Odeon for the sums received for the tickets but retains the card handling charge. 13.Bookit pays Girobank for the services it provides out of the card handling charges it has retained.”
“53. . . . 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 characterized 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.” and, second, to two paragraphs in the judgment of Lord Justice Laws in this Court in Commissioners for Customs & Excise v FDR (“FDR”) (2000] STC 672, 687): “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. . . . The pro and con entries constitute the transfer. There is nothing else. . . . 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.”
“[47] . . . A payment or transfer for the purpose of paragraph 3 [in article 13B(d) of the Sixth Directive] is the execution of an order to transfer a sum of money from one account to another so as to effect a change in the legal or financial situation. This is clearly established by the decision of the ECJ in SDCparagraph 53 and by the Court of Appeal in FDRparagraphs 37 and 38. In this case there are two payments or transfers, (1) the payment or transfer of the price of the ticket and the card handling fee from the Customer (or its card issuer in the case of a credit card) to the account of Bookit with Girobank (clause 3.1.1 MSA) and (2) the payment or transfer of the ticket price from Bookit's account with Girobank to the account of Odeon (clause 2.1.2 MSA). ”
“[51] . . . The payment by Bookit to Odeon was the necessary consequence of the fact that it was the agent of Odeon for the purpose of selling the cinema tickets.”
“[51] . . . As is emphasised in paragraph 3.2 MSA that payment was made to Bookit for and on its own account. It was a payment by or on behalf of the Customer. It did alter the legal and financial situation. The card handling services provided by Bookit to the Customer were more than technical or electronic assistance but were the essential preliminaries to any remote payment by the Customer being effected. They were not rendered as a party to the contract between the Customer and Odeon, nor as the sub-contractor of either of them. They were separately remunerated by the card handling fee paid by the Customer. They constituted activities distinct from those of any other party.”
“[53] In my judgment the Tribunal arrived at the wrong conclusion. They did so because, having admitted further evidence, they did not sufficiently revisit their earlier conclusion. In particular whilst they recognised that their conclusions in paragraphs 80 to 81 of the First Decision required some modification they did not spell it out. Similarly the conclusion set out in paragraph 12 of the Second Decision assumes that the question is whether Bookit effected the payments. I do not think it is so limited. The service Bookit provided to the Customer constituted a transaction concerning such a payment, it was separately remunerated and it was not performed as agent or subcontractor of the Customer, Odeon or Girobank. As such, in my judgment, it came within Article 13(B)(d)(3).”
“The actual components of the supply by Bookit are . . . limited to obtaining the card information with the necessary security information and transmitting this to Girobank.”
“Paragraphs 80 and 81 [of the first decision] require modification in that they omitted the obtaining by Bookit of authorisation from Card Issuers . . . and the transmission of the Card Issuers’ authorisations to Girobank.”
“20. Before functions of the kind performed by SDC are examined, it must be pointed out that, according to settled case-law of the court, 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 (judgment in Stichtung Uitvoering Financiële Acties v Staatssecretaris van Financiën (Case 348/87) [1989] ECR 1737 at 1753, para 13). 21 Furthermore, as the court pointed out in its judgment in EC Commission v Netherlands (Case 235/85) [1987] ECR 1471 at 1489, para 18, and its judgment in Stichtung Uitvoering Financiële Acties v Staatssecretaris van Financiën (Case 348/87) [1989] ECR 1737 at 1752, para 11, it is evident from the 11th recital of the preamble to the Sixth Directive that the exemptions constitute independent concepts of Community law which must be placed in the general context of the common system of VAT introduced by the directive. 22. Finally, 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 (see Skatteministeriet v Henriksen (Case 173/88)[1990] STC 768 at 778, [1989] ECR 2763 at 2780, paras 10 and 11).”
“Transfer 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 themselves be described as transactions concerning transfers within the meaning of point (3) of art 13B(d) 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 point (3) of art 13B(d) 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 in view, it must be noted first of all that the wording 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 transfer’ 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 the element represents is exempt. The interpretation put forward by SDC cannot therefore be accepted. 66. In order to be characterized as exempt transactions for the purposes of points (3) and (5) of Article 13B, 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 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. 67. It is for the national court, which is acquainted with all the facts of the case, to determine whether the operations carried out by SDC have such a distinct character and whether they are specific and essential. 68 In view of all foregoing considerations the reply to be given to the first and fourth questions concerning point (3) of art 13B(d) of the Sixth Directive 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.”