‘After consulting the advisory committee on value added tax (hereafter, the ‘VAT committee’), each member state may regard as a single taxable person any persons established in the territory of that member state who, while legally independent, are closely bound to one another by financial, economic and organisational links. A member state exercising the option provided for in the first paragraph, may adopt any measures needed to prevent tax evasion or avoidance through the use of this provision.’
‘(1) Where under sections 43A to 43D any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and - (a) any supply of goods or services by a member of the group to another member of the group shall be disregarded; and (b) any supply which is a supply to which paragraph (a) above does not apply and is a supply of goods or services by or to a member of the group shall be treated as a supply by or to the representative member; … and all members of the group shall be liable jointly and severally for any VAT due from the representative member.’
“I do not construe Lord Nolan’s reference to “dealing on behalf of” the other members of the VAT group as a reference to an agency relationship. Section 43 is not concerned with intra-group legal arrangements of group members. It is concerned with dealings in relation to VAT with entities outside of the VAT group and with HMRC…In its dealings with HMRC in relation to VAT the representative member is treated as carrying on the businesses of the other members of the group.” (c) At paragraph 23: “ In Ampliscientifica Srl v Ministero dell’ Economia e delle Finanze (Case C-162/07 ) … the CJEU (paras 19 and 20) explained that article 4.4 of the Sixth Directive, if implemented by a member state, had the effect that companies in a VAT group were no longer treated as separate taxable persons for the purpose of VAT but were to be treated as a single taxable person.” (d) At paragraph 24: “ The words in section 43(1) are clear beyond question: ‘any business carried on by a member of the group shall be treated as carried on by the representative member.” (e) At paragraph 26: “…it is the appointment of a company as a representative member of the group which provides the legal person which is the taxable person.” (f) At paragraph 27: “Section 43 of VATA does not make the group a taxable person but treats the group’s supplies and liabilities as those of the representative member…” , and (g) At paragraph 31: “ In this regard I agree with the impressive analysis of the single taxable person in the context of a subsisting VAT group by the FTT (Judge Roger Berner and Mr Nigel Collard) in paras 73-75 of the decision in Standard Chartered plc v Revenue and Customs Comrs[2014] UKFTT 316 (TC) …In particular, as Judge Berner stated (para 73): ‘Under UK law, as set out in section 43 VATA, the concept of the single taxable person is properly implemented through the representative member…The representative member is not the agent or trustee of the constituent members of the group. It is … the domestic law embodiment of the single taxable person…”. 292. In the course of the hearings we had been referred to Taylor Clark (which was then subject to appeal) Ampliscientifica, Thorn and Standard Chartered so it is very helpful to have such an authoritative and clear exposition of the law. 293. We observe in passing that Lord Hodge, as obiter dicta, stated at paragraphs 40 and 41 that he declined to make a reference as to whether his interpretation of Section 43 VATA was compatible with Article 11 of the PVD. His reasoning was that a ruling by the CJEU that a member of a VAT group is a member of a single taxable person would not alter the conclusion in that appeal. Even if there were such a ruling we do not see any application in this appeal. 294. We see no dubiety in the reasoning advanced by Lord Hodge. Indeed his reference in paragraph 25 to Skandia America Corp. (USA), filial Sverige v Skatteverket [13] , to which we were also referred by the parties, reinforces our view that the taxable person is the representative member and that any supply must therefore be treated as made to or by the representative member. In that case a third party supply to a member of a VAT group was treated not as a supply to the member but as a supply to the group. 295. As the appellants correctly state at paragraph 5 of the Statement, in EE the media services and the payment handling services were provided by the same legal entity and therefore the additional payment handling charges were not to be treated as a distinct and independent supply. 296. The logical sequitur to that is that the taxable person, ie VML, who, for VAT purposes is treated as making the supply to the customer of both media services and the payment handling services, cannot therefore be treated as making a distinct and independent supply of the payment handling services. 297. For the reason set out in the quotation from Lord Nolan in Thorn at paragraph 291(b) above we disagree with Mr Cordara’s argument that Section 43 VATA is a purely inward looking fiction. 298. We agree with the Commissioners’ assertion that since the effect of the VAT grouping is that the single taxable person, in the person of the representative member, makes the supply or supplies then there is no escape from the CJEU decision in EE. 299. However, if we are wrong in that we must look at the other arguments on the effect of grouping. 300. Mr Cordara argued that, unlike in EE where there was only one supplier, the services supplied by VML are provided partly as principal and partly as agent, so the Commissioners must be relying on the deeming provisions in Section 47(3) VATA. Therefore the CPP concepts of ancillary supply come into play. Section 47(3) has nothing to do with groups but reads “Where services … are supplied through an agent who acts in his own name may, if they think fit, treat the supply both as a supply to the agent and as a supply by the agent.” 301. However, we agree with Mr Pleming that where, as here, there is an all-encompassing VAT group, that section is not of any great relevance since Section 43(1)(a) VATA provides that all intra group supplies are disregarded. 302. In finding that the representative member is the taxable person who makes the supply we do not see that there is any conflict with the line of authority to the effect that Section 43 VATA does not have the effect of altering the character of a supply made to a person outside the group. 303. Indeed Judge Berner addresses that very issue at paragraph 70 of Standard Chartered which reads: “ 70. That is not to say that the single taxable person concept is all-encompassing. It operates only at the level of the VAT consequences of the transactions carried out by the group members, and does not coalesce the group members for all purposes. Those group members remain individual entities as a matter of law. Regard must be had to the real transactions they carry out. It is only the VAT effect of those transactions, once identified by reference to the real facts, that is governed by the single taxable person construct. The single taxable person fiction does not alter the character of the actual transactions, or combine what would otherwise be separate supplies into a single supply.”
“60. The key principles for determining whether a particular transaction should be regarded as a single composite supply or as several independent supplies may be summarised as follows: (1) Every supply must normally be regarded as distinct and independent, although a supply which comprises a single transaction from an economic point of view should not be artificially split. (2) The essential features or characteristic elements of the transaction must be examined in order to determine whether, from the point of view of a typical consumer, the supplies constitute several distinct principal supplies or a single economic supply. (3) There is no absolute rule and all the circumstances must be considered in every transaction. (4) Formally distinct services, which could be supplied separately, must be considered to be a single transaction if they are not independent. (5) There is a single supply where two or more elements are so closely linked that they form a single, indivisible economic supply which it would be artificial to split. (6) In order for different elements to form a single economic supply which it would be artificial to split, they must, from the point of view of a typical consumer, be equally inseparable and indispensable. (7) The fact that, in other circumstances, the different elements can be or are supplied separately by a third party is irrelevant. (8) There is also a single supply where one or more elements are to be regarded as constituting the principal services, while one or more elements are to be regarded as ancillary services which share the tax treatment of the principal element. (9) A service must be regarded as ancillary if it does not constitute for the customer an aim in itself, but is a means of better enjoying the principal service supplied. (10) The ability of the customer to choose whether or not to be supplied with an element is an important factor in determining whether there is a single supply or several independent supplies, although it is not decisive, and there must be a genuine freedom to choose which reflects the economic reality of the arrangements between the parties. (11) Separate invoicing and pricing, if it reflects the interests of the parties, support the view that the elements are independent supplies, without being decisive. (12) A single supply consisting of several elements is not automatically similar to the supply of those elements separately and so different tax treatment does not necessarily offend the principle of fiscal neutrality.” 306. That appeal had been stayed pending the issue of the decisions of the CJEU Purple Parking and Airparks Services v HMRC ("Purple Parking") [15] and Field Fisher Waterhouse LLP v HMRC ("Field Fisher Waterhouse") [16] . The principles set out at paragraph 60 are derived from the exposition of the law in the latter case which referred to the former case. We annex at Appendix 3 a copy of paragraphs 14 to 26 of Field Fisher Waterhouse which references the cases on which reliance was placed. 307. At paragraph 61 of Middle Temple, Judges Sinfield and Gort pointed out that it was apparent that in Field Fisher Waterhouse the tenant had no choice but to receive the services from the landlords. They had no right or opportunity to obtain the services from a third party. They stated: “In our view, the CJEU cases show that where there is genuine contractual freedom to obtain a service from a third party and, consequently, a separately identified charge is made for the service, this supports the existence of several independent supplies rather than a composite single supply.” 308. We find that from the perspective of a typical customer who did not, or could not, pay by Direct Debit the choice was to sign the contract for provision of media services which included the liability for the payment handling charge, or not to obtain the media services at all. There was no possibility whatsoever of obtaining any assistance from an independent third party. Furthermore, for many of those customers there was no real choice in any event. If one does not have a bank account or one’s income fluctuates payment by Direct Debit is simply not even a possibility. The contract with the customer 309. The Supreme Court has held that the contract is the starting point in determining the nature of a supply and the legal rights and obligations between the parties. This is because the contractual position normally reflects the economic and commercial reality of the transactions. 310. Thus, in HMRC v Secret Hotels2 Ltd [17] (“Secret Hotels2”), Lord Neuberger stated at [31]- [32]: “31. Where parties have entered into a written agreement which appears on its face to be intended to govern the relationship between them, then, in order to determine the legal and commercial nature of that relationship, it is necessary to interpret the agreement in order to identify the parties' respective rights and obligations, unless it is established that it constitutes a sham. 32. When interpreting an agreement, the court must have regard to the words used, to the provisions of the agreement as whole, to the surrounding circumstances in so far as they were known to both parties, and to commercial common sense. When deciding on the categorisation of a relationship governed by a written agreement, the label or labels which the parties have used to describe their relationship cannot be conclusive, and may often be of little weight. As Lewison J. said in A1 Lofts Ltd v Revenue and Customs Commissioners[2010] STC 214 , para 40, in a passage cited by Morgan J: ‘The court is often called upon to decide whether a written contract falls within a particular legal description. In so doing the court will identify the rights and obligations of the parties as a matter of construction of the written agreement; but it will then go on to consider whether those obligations fall within the relevant legal description. Thus the question may be whether those rights and obligations are properly characterised as a licence or tenancy (as in Street v Mountford[1985] AC 809 ); or as a fixed or floating charge (as in Agnew v IRC[2001] 2 AC 710 ), or as a consumer hire agreement (as in TRM Copy Centres (UK) Ltd v Lanwall Services Ltd[2009] 1 WLR 1375 ). In all these cases the starting point is to identify the legal rights and obligations of the parties as a matter of contract before going on to classify them.’" 311. We have also had regard to Lord Neuberger in Arnold v Britton and others [18] at paragraph 15 which reads: “15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd[2009] UKHL 38 ,[2009] 1 AC 1101 , para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen)[1976] 1 WLR 989 , 995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v Ali[2002] 1 AC 251 , para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30.” 312. For the avoidance of doubt, although, following Middle Temple we have made findings about what the typical customer might think, we stress that is not what the customer might subjectively think but rather objectively what such a customer would think. 313. We have set out at length our findings in fact but as far as the T&C are concerned, it is obviously tripartite and the payment handling charge is clearly identified as is the fact that it is payable to VMPL. 314. We note that section F3 of the T&C means that if a customer pays for the media services in full, nevertheless if the payment handling charge is not paid VML has the right to terminate the media services. That is not suggestive of separate supplies. 315. There is a lack of clarity in relation to a number of matters in the contract. For example although the contract is between VML, VMPL and the customer, as we point out at paragraph 96 there are repeated references to Virgin Media. Further, the contract is described as a “two-way thing” yet there are purportedly three parties. 316. As we point out repeatedly, payment handling services are not defined. Whilst, to an extent, we understand the argument that those words are self-explanatory, nevertheless, our findings at paragraph 98 are crucial. In particular we are clear that all a typical customer would know is that if they wanted access to media services then they had to pay VMPL not VML and if they paid by Direct Debit it would cost less. 317. To use the words of Lord Neuberger, it is “ commercial common sense” that although VMPL is described as providing payment handling services for the customer, the reality is that VML is using VMPL, as its agent, to collect all of the monies due. That is borne out by the wording in the bill itself (see paragraph 113). 318. Although F1 of the T&C states that VMPL will collect, process and apply payments the emphasis is on “process” as can be seen at paragraph 93 above. That is borne out by the Memorandum of Understanding (see paragraph 211(1), (3) and (6) above). 319. It was argued for the appellants that the payment handling charge is severable from the provision of media services because the£5 fee “…is not synchronised at all with service delivery” because the supply of media services has been made before the fee is charged. We disagree. As we point out at paragraph 106 customers are billed in advance for the basic monthly service and in arrears for those parts of the media services, such as, for example, pay per view television services, and the payment handling charges that they have already incurred. The£5 fee is embedded in the middle of the bill. We have no difficulty in finding that, in the words of paragraph 54 of Ministero dell’Economia e delle Finanze v Part Service Srl [19] , the bill is “… evidence [which] discloses the characteristics of a single transaction” . 320. We rely on, and are bound by the decision of the Upper Tribunal in General Healthcare Group Limited [20] (“GHG”). In that case, after analysing the law on single composite supply or multiple separate supplies the Tribunal found at paragraph 45 that after Levob Zerzekeringen BV v Staatssecretaris van Financiën [21] (“Levob”) “… there can be a single composite supply where two or more elements supplied by the taxable person to the typical consumer are not in a principal/ancillary relationship but are so closely linked that they form, objectively, a single, indivisible economic supply which it would be artificial to split”. 321. We observe that the Tribunal went on to consider both Telewest and C&E Commissioners v Wellington Private Hospital Ltd & Others [22] (“Wellington”) both of which cases were referred to extensively in the course of the submissions in this appeal. 322. It was argued at paragraph 61 in GHG that in Telewest : “The Court of Appeal had held that supplies by two separate suppliers, not being members of a VAT Group , could not be treated as a single supply. At [80], Arden LJ referred to the fact that Millett LJ had expressed the view, obiter, in Wellington that supplies by two separate suppliers could not be treated as principal and ancillary supplies.”
“…the essential features of the transaction must be ascertained and regard must be had to all circumstances in which that transaction takes place (see to that effect, CPP (paras 28 and 29); Aktiebolaget NN (paras 21 and 22); Ludwig (para 17; and order in Tiercé Ladbroke and Derby (paras 19 and 20) .” 328. In particular, in regard to the Welcome Pack, at paragraph 86, for the reasons given, we find that Virgin Media was marketing a saving if payment was made by Direct Debit. That is consistent with other references to discounts and savings. 329. It is also consistent with Mr Mullin’s confirmation that the absence of a payment handling charge for payment by Direct Debit but the imposition for other methods of payment was a carrot and stick approach. As we see the matter, the contract provides that VML will furnish the customer with the media services for which it reasonably expects that the customer will have to pay. VML’s preference is that payment is made by Direct Debit so therefore we agree with Mr Pleming’s argument that the carrot and stick approach can only be an approach for VML. 330. If the object were to maximise VMPL’s returns then a strategy whereby payment by Direct Debit was encouraged, as it admittedly most certainly was, would be counter-productive. 331. The last key document that is customer facing is the bill and, as we state at paragraph 107, that is very important. At paragraph 112 we have found that the payment handling charge is simply part of the bill for services from Virgin Media. 332. Once the customer provides its credit or debit card details, pays PayPoint, puts a cheque in the post or arranges other forms of payment, it has no interest in the processing of the payment or by whom. From the point of view of the typical customer the payment handling service provided by VMPL, at VML’s instigation, is certainly not an aim in itself. Indeed to adopt the language of the CJEU in Commission v France [23] (“France”) at paragraph 28 the customer would be “indifferent ” as to how the payment is processed. 333. Although, of course, there are nuances, we find that the only material difference between the broad factual matrix in this case and that in T-Mobile (UK) Limited v HMRC [24] (“T-Mobile”) is the interposition of VMPL. Of course that is consistent with paragraph 5 of the Statement. 334. Like in T-Mobile , the actual charge bore no relation to the actual cost of processing the payments and business customers incurred no charge. We agree with, and adopt, the reasoning of the Tribunal when it stated at paragraphs 65 and 66 that: “65 … Neither the fact that the SPHC is made only to customers who pay by a non-preferred method, nor the fact that the SPHC appears as a separate item on the bill, has the effect of transforming the receipt of consideration in respect of the supply of the services into a separate distinct supply of a ‘payment handling’ service: Levob . Any provider of goods or services for a consideration will incur administrative costs in respect of receipt of payment for the goods or services which it provides. They are the overheads of running a business. It is to be expected that by providing telecommunications services T-Mobile will receive remuneration. In our view it is inappropriate to analyse the transaction in terms of what is principal and what is ancillary. The supply of the SPHC in this case accounts for a small proportion of the price of the transaction as a whole, and does not constitute for customers an aim in itself. 66. If we are wrong in holding that there is a single supply in the present case, then in our judgment the supply of the SPHC is an ancillary supply which takes on its VAT treatment from the principal service. The SPHC is not an end in itself, it has no independent existence or usefulness in isolation from the telecommunications services and is simply the means by which T-Mobile administers its receipt of payments for the telecommunications service.” 335. Of course T-Mobile became Everything Everywhere and we are bound by the decision in EE . Of course we accept that (paragraph 21) “…every transaction must normally be regarded as distinct and independent ”, nevertheless (paragraph 22) “ …a single supply from an economic point of view should not be artificially split…” and (paragraph 23) “ …several formally distinct services, which could be supplied separately and thus give rise in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent”. 336. For the reasons we have set out we find that the supplies made by VML and VMPL are not independent, and they, like in EE , are a single supply from an economic point of view. The conclusion in EE at paragraph 32 reads: “Consequently, the answer to the eighth question is that, for the purposes of collecting VAT, the additional charges invoiced by a provider of telecommunications services to its customers, where the latter pay for those services not by Direct Debit or by BACS transfer but by credit card, debit card, cheque or cash over the counter at a bank or authorised payment agent acting on behalf of that service provider, do not constitute consideration for a supply of services distinct and independent from the principal supply of services consisting in the supply of telecommunications services.”
“transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;” 344. This exemption was formerly contained in Article 13B(d)(3) of the Sixth VAT Directive (77/388/EEC), which was in the same terms but also included the words “and factoring” at the end. 345. This exemption is implemented in UK law, albeit using different language, by section 31(1) VATA which provides that supplies specified in Schedule 9 are exempt. Items (1) and (5) of Group 5 of Schedule 9 provide as follows: “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 … (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity.” 346. The relevant Notes to Group 5 are as follows : “(1) Item 1 does not include anything included in item 6 [which deals with securities]. (1A) Item 1 does not include a supply of services which is preparatory to the carrying out of a transaction falling within that item … (5) For the purposes of item 5 ‘intermediary services’ consist of bringing together, with a view to the provision of financial services- (a) persons who are or may be seeking to receive financial services, and (b) persons who provide financial services, together with (in the case of financial services falling within item 1 …) the performance of work preparatory to the conclusion of contracts for the provision of those financial services but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities. (5A) For the purposes of item 5 a person is ‘acting in an intermediary capacity’ wherever he is acting as an intermediary, or one of the intermediaries between (a) a person who provides financial services, and (b) a person who is or may be seeking to receive financial services. (5B) For the purposes of Notes (5) and (5A) ‘financial services’ means the carrying out of any transaction falling within item 1, 2, 3, 4 or 6.”
“11. … 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. … 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 a consideration by a taxable person.” 349. This passage was cited by Chadwick LJ in the Court of Appeal in Expert Witness Institute v Customs and Excise Commissioners [27] at paragraph 16 and he went on say the following at paragraphs 17 and 19: “17… 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 cover 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. 19. …I reject the premise that the proper approach to construction does require the court to confine the scope of an exemption if it can. The task of the court is to give the exempting words a meaning which they can fairly and properly bear in the context in which they are used.” 350. In HMRC v Axa UK plc [28] (“Axa”), a case which related to a payment handling service provided by a member of the Axa VAT group, Denplan Ltd, to dentists, the CJEU stated at paragraph 30 that although Article 13 exemptions needed to be interpreted strictly, “debt collection or factoring ” : “…is to be interpreted broadly as it is an exception to such derogation, with the result that the transactions which it covers are subject to tax in accordance with the fundamental rule forming the basis of the Sixth Directive…”. 351. As can be seen, the domestic legislation does not make an express reference to the exclusion of debt collection from the exemption but when Axa returned to the Court of Appeal [29] the unanimous conclusion was that, despite the absence of an express reference to debt collection in the UK legislation, that carve out applied as a matter of UK law. Arden LJ made it explicit at paragraph 49 that: “ In my judgment it is clear that Group 5, item 1 implements the whole of art 13(B)(d)(3).”
“ Debt collection by its nature can only be performed for the creditor.” 356. The legal and factual focus of the Bookit and NEC decisions was on debit and credit cards whereas VMPL offered a much wider range of payment related services. The breadth of work undertaken by VMPL in processing and applying the payments, whether itself or via the use of subcontractors, was much wider than in Bookit and NEC. 357. Bookit and NEC are cases dealing with a single supply where an attempted financial supply had been “tacked on”
“25. The Court then added that the receipt of a payment and the handling of that payment are intrinsically linked to any supply of services provided for consideration, and that it is inherent in such a supply that the service provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the service supplied, the Court holding that, in principle, any method of payment for a supply of services involves the provider taking certain steps for the handling of the payment, even if the extent of those steps may vary from one method of payment to another (see, to that effect, judgment of2 December 2010 , Everything Everywhere ,…)”
“a) If it is a debit card then the funds belong to the card holder, are in his account and are his funds. He uses the card to make a payment from his own funds ; b) If it’s a credit card, then the card issuer makes a supply of credit with terms agreed with the card holder.” 382. We also observe that twice in the appellants’ submission there is a new suggestion that a differentiation with Bookit and NEC is that VMPL extends credit to the customer. We reject that. 383. We agree with the Commissioners that there is no evidence to support the existence of a separate supply of credit. The customer simply signs a contract for services and agrees to pay for services received or about to be received. Consequently neither appellant can be granting credit. We accept that VMPL is also not registered on the FCA register to be a grantor of credit. General discussion 384. We do not address each individual strand of the parties’ lengthy arguments but rather have considered the totality of the arguments as they relate to the facts as found. 385. Our starting point is that DPAS is the most recent CJEU case relating to payments and exemption. DPAS relates to a dental plan similar to the one considered in Axa , except that the contractual arrangements had been restructured following the decision in that case. 386. We observe that in the course of its judgment in DPAS the CJEU extensively (12 times in 24 paragraphs) referred to, and relied on, its decision in Bookit. 387. In turn the Court in Bookit (and also in NEC), in its preliminary observations, placed reliance on its decision in EE not only at paragraph 25, as the Commissioners point out, but also in most of the other paragraphs under that heading. 388. In EE, amongst other cases, the Court also placed reliance on SDC, Tiercé, CPP, Levob, and Axa. 389. It is clear to us that, over more than the last decade, the jurisprudence of the CJEU in relation to payment activities has evolved. The current position is that, read together, EE , Bookit , NEC and DPAS make it clear that any appellant seeking to establish entitlement to the financial exemption, where an alleged financial service or supply has been carved out of a transaction, has a significant hurdle to surmount. 390. We observe that the very fact that these cases all deal with a situation where the purported financial transaction is very closely linked with the provision of a different supply is hugely significant. In domestic law, as long ago as 1999, Lord Hope when considering whether a supply was incidental or ancillary in HMRC v British Telecommunications PLC [33] stated “ As a matter of general principle comparable transactions should for VAT purposes, so far as possible, be treated equally”
“74. The decision of the CJEU in DPAS is, in our judgement (sic), clear and unambiguous. Where the relevant service at issue involves the giving of an instruction to a financial institution to effect a payment, it does not constitute an exempt supply even though it may be a necessary step in order for the payment to be made.”
“ It is clear that when a Customer hands over his or her money to pay a utility bill to an Agent there is a change in the legal and financial position between that Customer and Network’s Client in that the Customer no longer owes the Client the amount stated on that utility bill. The Customer, having settled the outstanding amount in accordance with the instructions on the bill would have an absolute defence if the Client were to issue proceedings to recover that sum.”
“54. It may be added, first, that such a service cannot be deemed to be, by its nature, a financial transaction for the purposes of Article 135(1)(b) to (g) of the VAT Directive, unless the view is taken that any trader that takes steps necessary for the receipt of payment by debit card or credit card is undertaking a financial transaction for the purpose of those provisions, which would render that concept meaningless and would be contrary to the requirement that VAT exemptions must be interpreted strictly. 55. Second, if the exemption provided for in Article 135(1)(d) of the VAT Directive were to be granted to a card handling service, such as that at issue in the main proceedings, that would be at odds with the purpose of exemption for financial transactions, which is to alleviate the difficulties connected with determining the tax base and the amount of VAT deductible and to avoid an increase in the cost of consumer credit (judgment of19 April 2007 , Velvet & Steel Immobilien , C-455/05, EU:C:2007:232 , paragraph 24, and order of14 May 2008 , Tiercè Ladbroke and Derby, C-231/07 and C-232/07, not published, EU:C:2007:332, paragraph 24). 56. If a card handling service, such as that at issue in the main proceedings, is subject to VAT, there are no such difficulties. In particular, the tax base, which corresponds to the consideration received in exchange for that service, namely the fee charged to the purchaser of the ticket for that service, can readily be determined, and such a transaction does not involve the provision of any credit to the purchaser by the provider of that service. Such a service cannot therefore properly be the subject of an exemption under Article 135(1)(d) of the VAT Directive.” 401. In summary, we agree with the arguments advanced by the Commissioners and we find that even if there is a supply by VMPL to the VML customers that that supply does not fall within the exemption. 402. Lastly, if we are wrong in that, we do not accept that any such supply is debt collection as the supply, if any, is not to the creditor. T. Abuse 403. There was no dispute between the parties that the leading case is, of course, Halifax plc v HMRC [37] (“Halifax”) and most readers of this decision will be conversant with the detail of that case. 404. In Halifax , the Grand Chamber of the ECJ set out the general principles that apply to the treatment of VAT avoidance arrangements: “69. The application of Community legislation cannot be extended to cover abusive practices by economic operators, that is to say transactions carried out not in the context of normal commercial operations, but solely for the purpose of wrongfully obtaining advantages provided for by Community law (see, to that effect, Firma Peter Cremer v Bundesanstalt fur Landwirtschaftliche Marktordnung (Case 125/76) [1977] ECR 1593 , para 21… 73. Moreover, it is clear from the case law that a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the VAT system (see, in particular, BLP Group[1995] STC 424 ,[1996] 1 WLR 174 , para 26, and Customs and Excise Comrs v Cantor Fitzgerald International (Case C-108/99 )[2001] STC 1453 ,[2002] QB 546 , para 33). Where the taxable person chooses one of two transactions, the Sixth Directive does not require him to choose the one which involves paying the highest amount of VAT. On the contrary, as the Advocate General observed in para 85 of his opinion, taxpayers may choose to structure their business so as to limit their tax liability. 74. In view of the foregoing considerations, it would appear that, in the sphere of VAT, an abusive practice can be found to exist only if, first, the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. 75. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage. As the Advocate General observed in para 89 of his opinion, the prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages. 81. … it is the responsibility of the national court to determine the real substance and significance of the transactions concerned. In so doing, it may take account of the purely artificial nature of those transactions and the links of a legal, economic and/or personal nature between the operators involved in the scheme for the reduction of the tax burden … 94. It follows that transactions involved in an abusive practice must be redefined so as to re-establish the situation that would have prevailed in the absence of the transactions constituting that abusive practice.” 405. More recently, Lord Sumption cited these paragraphs in HMRC v Pendragon [38] (“Pendragon”) and at paragraphs 12 and 13 went on to state:- “12. The second difficulty which arises from the application of the principle of abuse of law to tax avoidance is that of concurrent purposes…. The potential for abuse consists in the method chosen to achieve the commercial purpose…but the method of achieving that purpose was held to be open to challenge if ‘the accrual of a tax advantage constitutes the principal aim of the transaction or transactions at issue’ (para 45). This conclusion seems to me to do no more than make explicit something which is implicit in the Halifax tests. Identifying the ‘essential aim’ in a case of concurrent fiscal and commercial purposes depends on an objective analysis of the method used to achieve the commercial purpose. As Advocate General Maduro observed in a passage from (para 89) of his opinion which was in terms approved by the court (para 75), the taxpayer’s choices must be ‘at least to some extent, accounted for by ordinary business aims’. The question is therefore whether the commercial objective is enough to explain the particular features of the contractual arrangements which produce the tax advantage. 13. These considerations effectively answer a question which is likely to arise in most cases involving prearranged sequences of transactions. Is the relevant ‘aim’ that of the scheme as a whole or of its component parts? The answer is that it may be either or both. Because the principle of abuse of law is, in this context, directed mainly to the method by which a commercial purpose is achieved, it is necessary to analyse each transaction by which it is achieved. Because the purpose of each step will generally be to contribute to the working of the whole scheme, the effect of the whole scheme also has to be considered. In WHA Ltd v Customs and Excise Comrs[2007] STC 1695 , para 22 , Lord Neuberger of Abbotsbury, delivering the leading judgment in the Court of Appeal, rejected the submission that the court was confined to considering the artificiality or purpose of each individual step, since these will commonly be individually unassailable but designed to produce the tax advantage in combination. I agree with this observation.” 406. As can be seen, Lord Sumption referred to the “Halifax tests” which he articulated as: “The first Halifax test: contrary to the purpose of the legislation” , and “The second Halifax test: transactions with the essential aim of obtaining a tax advantage”
“It followed from art 2 of the Sixth Directive that every transaction was normally to be regarded as distinct and independent. However, a transaction which comprised a single supply from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system.” 408. We agree with the Commissioners that the purpose of the legislation is to ensure that there is no such artificial split. Essential aim 409. The CJEU at paragraphs 53 and 54 in R & C Commrs v RBS Deutschland Holdings GmbH [40] stated: “53. It is important to add that taxable persons are generally free to choose the organisational structures and the form of transactions which they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens. 54. The court has held that a trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the neutral system of VAT (see Customs and Excise Comrs v Cantor Fitzgerald International (Case C-108/99 )[2001] STC 1453 ,[2001] ECR I-7257 , para 33). In that connection, the court has made clear that, where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax lability (see Halifax (para 73)). 410. The Commissioners are entirely correct in saying that VML could have continued to operate the payment handling services and charge a fee for doing so as their predecessors had done. As can be seen, however, that does not mean that they had to do so. 411. It is unfortunate that, as we find at paragraph 206, PwC consistently denied that there were tax considerations driving the introduction of VMPL since the Disclosure documents make it explicit that tax considerations were an extremely important consideration. In that context it is unsurprising that the Commissioners have actively considered an abuse argument since as long ago as 2011. 412. Prior to hearing the detailed evidence as to the modus operandi of Virgin Media we can understand why the Commissioners argued at paragraph 11 of their Further and Better Particulars that: “11 VMPL does not act independently of VML: a. VMPL is 100% owned by VML; b. There are common officers; c. VMPL owns no assets and directly employs no permanent staff; d. Central operating costs, including office accommodation, facilities, and its employment costs are for the most part paid by VML but a proportion were recharged to VMPL; e. The VMPL annual accounts each record that ‘there are few meaningful performance indicators monitored at an entity level for [VMPL]”; f. Sums due to VML for the supply of telecoms services were paid into (and through) particular banks accounts originally engendered by the particular geographical location of the particular telecoms franchise. From 8 th February 2007, the account numbers remained the same whilst each account name was changed to VMPL; g. Sums paid into these accounts by consumers and some business customers were paid into the bank account of ntl Group Limited (latterly, VML) and all customer payments so received would continue to be automatically swept into the central VML account. h. In summary, VMPL, although a separate legal entity, acts under the direction and control of VML.” 413. Mr Pleming was in some ways correct in saying that “…VMPL functions to all intents and purposes save for its separate legal entity as a business - probably the wrong word - but a business or accounting division or department of VML.” 414. However, that is precisely how all the companies in the Virgin Media group operate and indeed how their predecessors operated. There is nothing “manufactured” or artificial about it. 415. As can be seen from our Findings in Fact, we find that looking at the modus operandi of any company in the Virgin Media group, there is nothing extraordinary about how VMPL operates. 416. This is a specialist Tribunal and we are both well aware of the structures of large corporate organisations such as the Virgin Media group, the way they conduct their businesses and the issues that they face prior to and following a merger. This was a very large corporation attempting to restructure and also rebrand after a merger. That is always a very difficult, expensive and time consuming situation. It is also an opportunity for change. 417. In our view, looking at the structure of the various organisations prior to the merger, we can easily understand that the rebrand was a perfect opportunity to try and streamline at least some of that which they had inherited. As our Findings in Fact indicate, that is precisely what they did. 418. We accept the appellants’ arguments for the utilisation of VMPL as a trading vehicle that we have set out at paragraph 240. 419. In our view it is not unreasonable for Virgin Media group to have put the income receipts into one part of the organisation and the payment collection facility into another. The fact that that was tax driven is not decisive. As Lord Sumption pointed out at paragraph 31 in Pendragon : “ …the Halifax test requires the ‘essential aim’ of a transaction to be determined by reference to ‘objective factors’ but this ‘must not be confused with the subjective intention of the participants’”. 420. In the particular circumstances of this group of companies, looking at the way that the companies conduct their business, we find that in the words of Lord Sumption at paragraph 12 of Pendragon “…the taxpayer’s choices must be ‘at least to some extent, accounted for by ordinary business aims’”
“Denplan is, in return for remuneration, responsible for the recovery of those debts and provides a service of managing those debts for the account of those entitled to them. Therefore, as a matter of principle, that service constitutes a transaction concerning payments which is exempt under Article 13B(d)(3) of the Sixth Directive unless it is ‘debt collection or factoring’, a service which that provision, by its final words, expressly excludes from the list of exemptions”. 63. At [32], the CJEU concluded that the service supplied by Denplan to dentists was ‘debt collection and factoring’ in Article 13B(d)(3) and was thus not exempt. 64. As we have noted above, AXA CJEU and the other decisions relied on by Target now need to be considered in light of DPAS. Mr Cordara accepted that to the extent that the CJEU, at [28] of AXA CJEU, appeared to express the view that the service (had it not constituted debt collection) fell within the ambit of “transactions concerning payment”, such a conclusion is no longer tenable in light of the decision of the CJEU in DPAS. DPAS 65. DPAS had provided services to dentists similar to those which Denplan had provided and which were the subject of AXA CJEU. In light of that decision, Denplan changed the contractual arrangements under which it provided the services to both dentists and their patients. DPAS contended that, under the new contracts, it made a standard rated supply of services to dentists and a separate exempt supply of payment services to their patients. The dental plan payment services involved, in essence, directing, pursuant to a direct debit mandate, that money was taken by direct debit from patients’ bank accounts and paid into DPAS’s own bank account and instructing its bank to make payments, less an amount for DPAS’s remuneration, to the dentists. At [10], the CJEU observed that DPAS’s way of implementing the plan was materially the same procedure (including the involvement of BACS) as was operated by Denplan in AXA CJEU. 66. DPAS accepted that its supplies to the dentists were taxable but argued that its supplies to patients were exempt for VAT purposes on the basis that they were transactions concerning transfer or payments within Article 135(1)(d). The Upper Tribunal referred two questions to the CJEU. The first question was whether DPAS’s supplies were exempt pursuant to Article 135(1)(d). The second was what were the principles for determining whether a service such as that performed by DPAS falls within the scope of “debt collection”