JPMorgan Chase Bank, NA v The Commissioners for HMRC [2023] UKFTT 856 (TC)

“… operates as a single global business, it means that the different parts of Markets work cohesively regardless of which entity they are part of.”

“… managing the full end-to-end lifecycle of our transactions.”

“… actually quite involved with the trading desk on a practical basis. They set the rules by which I can trade.”

“… complex web of different systems, trading platforms and applications, as well as large number of specialist employees that together perform many of the key functions that are required in order to carry out the transaction entered into by SPLC.”

“… an end-to-end solution to traders across the whole trade lifecycle (in some cases running as an STP with no human involvement).”

“… the trading infrastructure touches every part of the lifecycle of a trade.”

“… in the following fundamental ways: (a) Shares give you partial ownership in a company, while bonds are a loan from the holder to a government (in the case of government bonds) or company (in the case of corporate bonds). Shares can appreciate in value and be sold later, and can also earn dividends. However, in most cases, neither of these returns are guaranteed. In contrast, most bonds pay fixed interest over time thereby providing the holder with a steady, guaranteed income stream. (b) The factors that affect a share price can be different to the factors affecting a bond price. There are numerous reasons why a company’s performance could struggle and its share price could fall. For bonds, the value of a bond is directly affected by interest rates. Generally when interest rates fall, the bond prices rise, and when interest rates rise, bond prices fall. (c) The way in which shares and bonds are valued differs. Bonds receive fixed, regular returns, it is known when they will expire (or “mature”), and the amount which will be repaid to the bond holder at expiration is known. In contrast, shares have uncertain expiration dates (a business can, in theory, go on forever or go insolvent at any time), returns are uncertain and the owner of the shares does not know whether it will receive any amount at expiration (if and when the business stops trading). (d) There is often a difference in the way in which dividends (on shares) and coupon payments (on bonds) are treated for withholding tax purposes. (e) The shares we trade in are listed on exchanges, which means that there is a market price which is observable by the public and everyone can see how the market price is impacted by global events. Most bonds are not traded on an exchange and not everyone has easy access to a wide range of bond prices. (f) Another important difference between shares and bonds is that they tend to have an inverse relationship in terms of price. By this I mean that when share prices rise, bond prices tend to fall, and vice versa.”

“… the sourcing and the way in which that information was ultimately used to construct a price would be very different.”

“Within Equities, we have teams of Technology, Operations, QR and MR staff that are dedicated to our Equities business globally, which means that the trading infrastructure we use in Equities is very different to the trading infrastructure used in other business areas within Markets. This is simply down to the different asset types and financial instruments that are traded in the different business areas.”

“One business area could not use the Business Delivery Services provided to another business area to conduct its business. There may be elements in common between different business areas, but the complete package is bespoke.”

“… different part of Operations and Tech that would be used depending on the area of Markets that we’re talking about.”

“… customised to a particular business because they’ll need to see the risk in a particular way that’s relevant for that business, and Risk Central will be an application that will bring that together with customised screens.”

“I wouldn’t have, for example, a risk management system that credit use. I would use a risk management system that is unique to equities. So in that regard I am not receiving the whole package. I’m receiving a package that is bespoke and unique to my needs.”

“… the model will be tailored to the product that it’s intended to be used for.”

“(a) In Rates: The main ‘underlying’ (namely interest rates) is a whole curve, because there are different rates to different time horizons - the rate to borrow for 2 years might be 1.5%, whereas the rate to borrow for 10 years might be 2.5%. This compares with, say, Equities, where a stock price is just a single number. There are in fact derivative products that are specifically designed to be sensitive to the slope of the interest rate curve: a “Yield Curve Spread Option” or YCSO, which is a popular product consisting of an option on the future value of the difference (ie spread) between two points on the yield curve e.g. the difference between the 2-year swap rate and the 10-year swap rate. The model needed for such a product must be capable of capturing future movements of the interest rate curve that include changes to the slope of the curve, not just parallel shifts. This increases the dimensionality of the modelling challenge and is a unique feature of models in the Rates space. (b) In Credit: Many credit derivatives, such as the “Credit Default Swap”, depend on the default of a reference company or sovereign. Credit models primarily need to capture the uncertainty in the timing of the default event. This requires models that make use of different probabilistic techniques, capturing the default event as the first jump in the so-called Poisson process, a process that moves in discrete increments. This compares with the models in Equities, FX, Commodities and Rates, that typically use continuous, non-jumpy processes, based on Brownian motion, to capture the future behaviour of Equities share prices, FX rates, Commodities prices and Rates curves.”

“… very different by line of business or by asset class”, He explained that the implications of a geopolitical event would be “… different by asset class, so bonds would react differently to … equities”

“Representatives from the functions that comprise the trading infrastructure (Technology, Operations, QR and MR) work closely with the front office throughout the transaction lifecycle and often sit on the trading floor.”

“… it would be almost impossible to take members of an Operations team for another business area within Markets and require them to work in Rates without any prior training or supervision.”

“… although they do transactions, I’m not sure how much assistance they need from an operations team outside of the syndication.”

“… heavily involved with CBNA’s technology and operations teams to design how these systems should operate.”

“… procure and provision the functionality from our Technology, Operations and QR partners. So typically how that would work is that the business – well “business” being myself within – the front office - would identify a potential – either some functionality that we require to service our clients, additional functionality, potentially new products that we want to trade with our clients or potentially issues that we’ve identified with existing infrastructure or working with technology to identify strategic initiatives. We would work with our own business heads to come up with a business proposal to effectively get the budget and the resource that we would need effectively for Technology and QR in order to provide that functionality that we need for the business. So essentially a business plan that each trading desk or function would need to come up with. That would then be taken to our global head and it would be – all of those proposals would be discussed in depth around the merits of each of those or not and also the allocation of budget to develop those and what kind of resource, costing, et cetera, is needed to actually develop it. Based on that negotiation, those proposals will then get approval to be implemented and deployed and the budget for our Technology, QR delivery, will be defined from the top of the firm down. So based on the success of that process, we may or may not get approval to go ahead and implement, you know, a certain piece of trading infrastructure that we need for our business. From there it’s then a project−based approach between the front office, as the business sponsors, the technology functions, in terms of delivering the software that we need, also the quantitative research where needed to build the necessary models, if it’s the example of where we’re offering a new product, and also our Operations partners to ensure that we have the full infrastructure – full end to end infrastructure. That would be typically how we would go about procuring and provisioning new technology and infrastructure for our business.”

“6.4 … each business area agrees to an annual general budget and has to manage this throughout the financial year. Technology investment priorities and spend form a key part of this budget, as do specific Investment Proposals (“Ips”) – which are Technology projects that Markets and, in particular, business areas, wish to prioritise and ensure that Markets Technology delivers on and to the agreed budget. 6.5 There is a Technology Council for each business area. This is a monthly meeting during which the progress on IPs is reviewed. The Technology Council is made of the head of each business area, and the technology head of that business area, as well as any other key Technology leaders. There will also be representation from QR. 6.6 The Technology Council focusses on the following: (a) reviewing whether the Technology teams in particular are on track or running behind their deliverables and milestones set out in each IP; (b) discussing the larger projects, such as Athena migration, and see whether the teams are on track to deliver the milestones set out in these IPs – with particular regard to the aspects that impact each business area; and (c) for a number of projects, reviewing how the Technology teams are doing in terms of budget, and whether the allocation set out in the IP is under control. For example, if the budget set out in an IP is $2.6 million, management need to check whether, based on the monthly financial forecasts for each IP (these forecasts are fed into the allocation systems of each IP), the budget will be enough, and if not, what actions need to be taken.” “Support Services”

“… trying to identify those things that were close to the actual conducting of the business, as opposed to those that were supportive and controlling and governing that business”

“They validate, they check that the model is fit for purpose, that it’s conceptually sound, that it’s been implemented correctly, that it’s been tested”

“… provide governance and oversight functions our trading. They’re not directly involved in effecting the trade, but … they are involved in providing governance, control and oversight and policy, within which we execute.”

“… to explain how our execution algorithms work and behave the way they do, and whether they are safe and will not lead to market disruptions.”

“The trading models developed by QR are subject to extensive and rigorous governance and review procedures to ensure that the trading models that QR creates are fit for purpose and used appropriately; these are crucial risks that must be identified and managed”

“Once the client has decided on the derivative solution that it wants, the front office will also have to engage with and obtain input from various other stakeholders, such as the VCG, legal, tax, accounting, capital, compliance, the Model Risk Governance Review Group and the reputational risk committee. Whether it will be the trader or Sales engaging with these groups will depend on the individual transaction. Following engagement with the aforementioned groups, the trader will send a final, firm price offer to the client.”

“In addition to performance management, there are regular meetings where front office personnel within Equities, together with colleagues from Operations, Technology, QR and MR, as well as compliance functions, review the trading performance and the delivery of the trading infrastructure aligned to Equities, including its constituent desks. It is through these meetings that we can identify what has gone wrong, what can be done to improve the position (including identifying upgrades in technology systems) and how we can provide our clients with the best service in a way that minimises risk. These meetings provide the front office with a high degree of scrutiny over the trading infrastructure. Where we identify mistakes or failures that could lead to poor levels of service to our clients, we put in place plans for remediation. The remediation plan is carefully monitored and I will hold my colleagues to account for actioning it. In my experience, these meetings are an effective mechanism to make sure that I receive the trading infrastructure needed to deliver for my clients and the business. The expectation in terms of our general business principles for individual conduct is that we should be transparent and highlight any concerns or problems. Any issue that I fail to resolve will be escalated to more senior personnel.”

“… working with other Support Functions to identify and escalate risks such as legal, tax, regulatory or similar issues.”

“… typically working alongside legal entity and product controllers to ensure external financial reporting is performed correctly”

“… would be a consumer of that technology, just as any other part of the firm would be a consumer of that common technology.”

“Attached is a copy of the Global Master Service Agreement (the “MSA”), effective as of January 1, 2006, by and among JPMorgan Chase & Co. (“JPMC”) and each of its branches, subsidiaries and affiliates (“Affiliates”) completing an Addendum thereto. The MSA, which has been executed by a duly authorized officer of JPMC, is to be used to substantiate expense allocations and payments among Affiliates of JPMC. Procedure Unlike other Master Service Agreements in which all relevant services and products covered therein are described in that Agreement or in attached Schedules, this MSA references the Expense Allocation Policy and Guidelines and the Product and Price Guide, both located on JPMC’s internal website on the Finance Workspace, and by its terms includes all expense products within the scope of the Product and Price Guide and, therefore, separate Schedules are not required for those Products. Attached to the MSA is an Addendum which is to be executed by each JPMC Affiliate to indicate its agreement to be bound by the provisions of the MSA, including an agreement to pay for Services based on the underlying cost for the expense products set forth in the Expense Allocation Policy and Guidelines which are within the scope of the Product and Price Guide, both as set forth in the MSA. Please note that any existing Service Agreements or Service Level Agreements which are in existence that relate to Expense Products within the scope of the Product and Price Guide, as the same may be amended from time to time, that are not specifically identified in an Addendum as not being terminated, shall be deemed terminated effective as of December 31, 2005 or as of the date of the relevant Addendum. In addition, the Addendum makes provisions for each legal entity to describe any other services provided to, or received from, one Affiliate to another Affiliate and which are not included in the Product and Price Guide by describing those services in a Schedule to be attached to an Addendum. Each line of business (“LOB”) should work with its designated lawyer in each location to ascertain the type and nature of services that any legal entity in the LOB is providing to, or receiving from, another Affiliate taking into account relevant regulatory, tax or other considerations to determine whether any such services need to be described in such a Schedule.”

“… WHEREAS, JPMC is a bank holding company registered under, and subject to the provisions of, the Bank Holding Company Act of 1956, as amended; WHEREAS, in providing Services to one another, Affiliates of JPMC are subject to certain provisions of the Federal Reserve Act, particularly Sections 23A and 23B, in dealings with other Affiliates as well as analogous rules imposed by other jurisdictions that require a fair allocation of expenses among affiliated entities (the “Bank Regulatory Rules”); WHEREAS, in providing Services to one another, Affiliates of JPMC are also subject to United States federal, state and non-United States income tax laws of the various jurisdictions in which JPMC and its Affiliates operate which require that compensation be paid for services provided in accordance with specified transfer pricing rules, including Section 482 of the United States Internal Revenue Code of 1986, as amended (the “Tax Rules”); WHEREAS, JPMC has adopted an expense allocation policy entitled the Expense Allocation Policy and Guidelines (the “Expense Allocation Policy”) that is posted on the internal website maintained by JPMC and is available to, and accessible by, all Affiliates which sets out the principles that JPMC and its Affiliates are to follow in determining the component cost by Expense Product (as defined below) to make up the total compensation to be paid for Services such that JPMC and its Affiliates will be in compliance with the Bank Regulatory Rules and the Tax Rules with respect to those Services; … WHEREAS, certain of the Expense Products within the scope of the Expense Allocation Policy are more fully described in the annual Product and Price Guides (as defined below) and any annotations thereto located on JPMC’s internal website in the Finance Workspace (it being understood that the items detailed in the Product and Price Guide may not necessarily be complete Services for purposes of value added tax or other analogous indirect taxes but rather may be viewed as components of Services); WHEREAS, the Expense Allocation Policy sets out the guidelines necessary to determine the nature of the Expense Products reflected in the Product and Price Guide that can be amalgamated to represent the consolidated price of Services provided for purposes of value added tax or other analogous indirect taxes; …”

“(a) “Provider” shall mean JPMC or any Affiliate providing Services pursuant to an Addendum, as such term is hereinafter defined. (b) “Recipient” shall mean JPMC or any Affiliate receiving Services pursuant to an Addendum. (c) “Product & Price Guide” or “PPG” shall mean each SAPCO Product Reference Information table and the PAR (project accounting and reporting) Reference Data Information table, each of which is updated as needed and archived on an annual basis. (d) […] (c) “Services” shall mean the activity performed by an affiliate for another the consideration for which is represented by the total cost of Expense Products related to that activity. These Services may be provided by a Provider to a Recipient pursuant to an Addendum.”

“2. Services; Compensation, (a) In General. Each Provider shall, or may, provide Services to a Recipient, from time to time, upon request. The material terms and conditions upon which such Services are provided shall in each instance be as mutually agreed as evidenced in an Addendum to this Master Service Agreement (each, an “Addendum” and, collectively, the “Addenda”), which may, but need not, be appended hereto. This Master Service Agreement and all such Addenda together constitute a single agreement and are referred to collectively as the “Agreement.” (b) Support Services. Except as otherwise mutually agreed, or if the relevant amounts are de minimis, for Expense Products within the scope of each annual Product and Price Guide (as the same may be revised and updated from time to time) that are identified singly or collectively as Services for which amounts are to be charged, each Recipient agrees to pay for the Services provided to it by the Provider the amount invoiced by the Provider to the Recipient, provided that the invoiced amount is calculated in accordance with the provisions of the Expense Allocation Policy. (It is understood and agreed that the detail provided on an invoice may encompass components of Services which in and of themselves are not complete services for purposes of value added tax or other analogous indirect taxes.) (c) Other Services. For all Services not described in paragraph (b) above, the nature of the Services to be provided, the charges therefor and other material terms and conditions shall in each instance be as mutually agreed, as evidenced in an Addendum to the Master Service Agreement. Charges for all such Services shall be based upon an arm's length charge determined pursuant to the provisions of the Tax Rules and the Bank Regulatory Rules. It is understood that compensation paid for such other services rendered will be based on one of the following methods and in accordance with applicable laws, regulations or regulatory guidelines: (1) fully loaded costs with no markup or (2) estimated fair market value of rendering the Services (which may include, as appropriate, fully loaded costs plus a markup thereon).”

“(a) Each Provider and each Recipient shall each maintain on their general ledgers special intercompany payable and receivable accounts for the exclusive accounting of the Services. (b) For Services, the cost of which is determined on the basis of the Expense Products within the scope of the Product and Price Guide, the Provider thereof shall charge the Recipient monthly, or as otherwise agreed between the parties, by preparing an invoice (“Invoice”) addressed to the Recipient in accordance with the terms of this Master Service Agreement and describing on the Invoice (substantially in the form of Appendix A attached hereto, or in some other form to which the parties mutually agree) the Expense Product singly or collectively that forms the basis of the consideration for Services performed and the charges therefore. For all such Services provided pursuant to this Agreement, and any other Services set forth in a Schedule to an Addendum, the Provider shall provide such other details and documentation as may reasonably be requested by the Recipient in order to substantiate and approve the charges. (c) In addition to the charges for the Services, the Recipient shall pay all applicable taxes based on or measured pursuant to this Agreement or the Services, excluding taxes based upon the Provider’s net income. The Provider agrees to provide all reasonable cooperation to the Recipient in the determination of any tax liability or in any claim or dispute the Recipient may have with any taxing authority relating to the imposition, computation or payment of any tax on a Service.”

“8. Independent Contractors. It is understood and agreed that the relationship between each Provider and each Recipient under this Agreement will be as an independent contractor and as principal and neither party (nor any of its employees) will be deemed to be employees of the other party. Each party further represents and warrants that, at all times, it will be the employer of its personnel in the performance of this Agreement. Such employees shall be selected by their employer in its sole discretion and shall not be considered the employees of the other party in any respect. The party providing Services pursuant to this Agreement agrees to arrange directly with such employees for all salary and other payments and will assume all responsibilities of an employer with regard to such employees including, but not limited to, (i) the arrangement of appropriate policies of insurance, including, but not limited to, worker’s compensation and unemployment insurance, and (ii) the withholding, where appropriate, of all taxes required by law to be withheld by an employer from an employee. 9. Audit/Regulatory Inspection of Records. Each Provider shall from time to time upon request of the Recipient of Services allow any regulatory agency with supervisory responsibility for the Recipient, or any of its affiliates and the Recipient, its internal and external auditors, agents and such third parties as the Recipient may designate (a) access to and the right to examine all of the Recipient’s and any such affiliate’s records and other materials in the Provider’s possession, custody or control, (b) access to and the right to examine the Provider’s books and records as they relate to the Services, and will allow them to make copies and take extracts there from, and (c) to interview employees, subcontractors and agents of the Service Provider, and to discuss the provision of the Services with them and with the relevant auditors and regulators, if required. The Provider shall reasonably cooperate with and assist any such efforts. In addition, the Provider shall allow the Recipient and all affiliates of the Recipient, and any external auditors on behalf of any such entity, to perform such periodic on-site reviews as such party deems appropriate. The Provider agrees that it shall not share any examination reports performed by a United States regulator (or information contained therein) with any regulator not from the United States without the express prior written consent of the appropriate United States regulatory authority. Each Provider hereby agrees to inform in writing any Recipient of Services if such Provider has been notified that any auditor, examiner or other regulator has requested access to any information of the Recipient held by the Provider.”

“15. Conflicts of Interest Waiver. Each Recipient acknowledges and agrees that the any Provider may provide the same Services, including those specified in any Schedule to an Addendum, to a range of legal entities. Each Recipient expressly waives any conflicts of interest which may arise from the Provider’s role in providing such Services.”

“… may provide certain services to other Affiliates (as such term is defined in the Master Service Agreement) of JPMC from time to time …” and that the Affiliate: “… wishes to engage other Affiliates of JPMC to provide certain services to it from time to time … for good and valuable consideration, the receipt of which is hereby acknowledged, …”

“1. Services. Services within the scope of the Product and Price Guide that are provided by JPMC Affiliate as a Provider, or received by JPMC Affiliate as a Recipient, will be described in detail in the Product and Price Guide. Other Services will be as described in a Schedule or Schedules attached hereto and made a part hereof. 2. Compensation. For Services listed in the Product and Price Guide (as the same may be amended from time to time), JPMC Affiliate agrees to be bound by the provisions of the Master Service Agreement and this Addendum, both in charging for Services it provides to, and paying for Services it receives from, other Affiliates. With respect to other Services provided to JPMC Affiliate by an Affiliate, the JPMC Affiliate agrees to pay the Affiliate the amounts set forth on the applicable Schedule. 3. Master Service Agreement. Each Recipient and the Provider hereby agrees to be bound by the terms and conditions of the Master Service Agreement, and further agrees that this Addendum is hereby incorporated by reference therein and made a part thereof. …”

“The objective of the indirect expense allocation process is to accurately align the costs incurred for providing internal services with the intended beneficiary of those services. This policy covers costs that are charged through SAPCO (the JPMC expense allocation system) and is applicable for both management reporting (MIS) and financial accounting purposes. This is accomplished by reflecting the allocation in a Line of Business (LOB) cost center (for Management Reporting purposes) and reflecting the payment for the allocation in the legal entity books and records (for financial accounting purposes). The charges are made at a Secondary Cost Element (SCE)/Expense Product Level for MIS and financial accounting transparency. As defined in the Global Master Services Agreement, one or more SCE/Expense Product combinations can make up a Functional Service for VAT and analogous tax purposes. Also, for financial reporting purposes the individual expense products may not define the service provided but may be cost components of that service: the value of a service can be ascertained by combining one or more SCE/expense products and/or combining costs from different cost centers; the nature of the service will be determined by the overall functions undertaken by a legal entity for specific businesses in another legal entity and may be a single composite service made up of multiple expense products. Expense allocations are charged between cost centers. A cost center is aligned to a unique JPMC Line of Business and resides in a unique JPMC legal entity. Throughout this document, guidance presented for “Management Reporting purposes” or “MIS" refers to LOB expense allocations to cost centers. Similarly, guidance presented for “Financial accounting purposes” refers to the same expense allocation, but from a legal entity standpoint. A service provider is any business that provides a service or product to an internal customer within JPMC. A customer is any organization within JPMC that is the recipient of an internal service or product. From an MIS perspective, a major goal of the expense allocation process is to provide the necessary transparency for LOBs to identify and understand costs and to promote cost savings. From a financial accounting perspective, the goal is to ensure a proper matching of revenue and expense evidenced by recording the payment for these allocations in the financial books and records of the legal entity. In general, each JPMC legal entity that provides a service to another JPMC legal entity or develops intangible property for another legal entity which results in a benefit to the other JPMC legal entity (all such services, “Recoverable Services”) is to receive payment of an appropriate amount from the benefited legal entity (or its surrogate) unless the probable benefits are so indirect or remote that an unrelated party would not have paid for a similar activity, or performed it itself. (As an exception to this general policy, expenses for support services need not be allocated among State branches of a single juridical legal entity.) Depending on the facts, and as described more fully below in Section 5, the amount charged is to be based on an amount reflecting an arm’s length charge. For regulatory purposes, costs incurred by JPMC banks and their subsidiaries which benefit JPMC&Co and its non-banking subsidiaries are to be charged and cash settled between JPMC&Co and the JPMC banks in a manner and at a rate which ensures that the transaction is at least as favorable from the point of view of the banks and their subsidiaries as comparable transactions with third parties.”

“All Secondary Cost Element and Expense Product descriptions and Product prices are to be documented in current versions of the SAPCO and PAR Product & Price Guides located in the Expense Management section of the Finance Workspace on the JPMC Intranet at Global Expense Management. For each SCE/Expense Product, the guide must provide a plain English description of the service being provided or intangible property being developed with detail sufficient to permit a basic understanding of the product and a basic understanding of the benefit that the service confers, or is expected to confer, upon the recipient. Also, for each SCE/Expense Product there is to be a plain English description of the methodology used to attribute the costs of the service provider or developer to the receiver or user sufficiently detailed to permit a basic understanding of the allocation methodology. The Product and Price guide must also provide names of persons to contact for more information with respect to the nature of the service or the allocation methodology. This information is to be stored and made reasonably accessible for future reference.…”

“The difference between the total actual expense incurred by an organization and the amount charged from that organization for the comparable time period is the residual expense.”

“Global Master Service Agreement Attached is a copy of the Global Master Service Agreement (the “GMSA”), effective as of January 1, 2006, revised as of December 1, 2006, as of March 1, 2007, June 1, 2009, and October 6, 2010 by and among JPMorgan Chase & Co. (“JPMC”) and each of its branches, subsidiaries and affiliates (“Affiliates”) completing an Addendum thereto. The GMSA, which has been executed by a duly authorized officer of JPMC, is to be used to substantiate expense allocations and payments among Affiliates of JPMC. Revisions There are substantive revisions effective October 6, 2010 regarding termination. Procedure Unlike other Master Service Agreements in which all relevant services and products covered therein are described in that Agreement or in attached Schedules, the GMSA references the Expense Allocation Policy and guidelines and the Product and Price Guide, both located on JPMC’s internal website on the Finance Workspace, and by its terms includes all expense products within the scope of the Product and Price Guide, Therefore, separate Schedules are not required for those Products. Attached to the GMSA is an Addendum which is to be executed by each JPMC Affiliate to indicate its agreement to be bound by the provisions of the GMSA, including an agreement to pay for Services based on the underlying cost for the expense products set forth in the Expense Allocation Policy and Guidelines which are within the scope of the Product and Price Guide, both as set forth in the GMSA. Please note that any existing Service Agreements or Service Level Agreements which are in existence that relate to Expense Products within the scope of the Product and Price Guide, as the same may be amended from time to time, that are not specifically identified in an Addendum as not being terminated, shall be deemed terminated effective as of December 31, 2005 or as of the date of the relevant Addendum. In addition, the Addendum makes provisions for each legal entity to describe any other services provided to, or received from, one Affiliate to another Affiliate and which are not included in the Product and Price Guide by describing those services in a Schedule to be attached to an Addendum. Each line of business (“LOB”) should work with its designated lawyer in each location to ascertain the type and nature of services that any legal entity in the LOB is providing to, or receiving from, another Affiliate taking into account relevant regulatory, tax or other considerations to determine whether any such services need to be described in such a Schedule. Completing an Addendum and Schedule The following information is required to be included in an Addendum or a Schedule thereto: • Name of the legal entity signing the Addendum; • A list of definitions to be used in the Addendum, if required; • Any local legal and regulatory requirements, if any; • A description of services rendered or received which are not included in the Product and Price Guide (to be added in the Schedule to the Addendum); • Any other pertinent details required regarding the services; • Name and title of the duly authorized officer signing the Addendum; and • If a Schedule is attached to an Addendum, it must be signed by duly authorized officers of the Service Provider and the Service Recipient.”

“WHEREAS, JPMC and its Affiliates provide or receive various services including Services (as such term is hereinafter defined) from time to time to or from each other; WHEREAS, JPMC is a bank holding company registered under, and subject to the provisions of, the Bank Holding Company Act of 1956, as amended; WHEREAS. In providing services to one another, Affiliates of JPMC are subject to certain provisions of the Federal Reserve Act, particularly Sections 23A and 23B, in dealings with other Affiliates as well as analogous rules imposed by other jurisdictions that require a fair allocation of expenses among affiliated entities (the “Bank Regulatory Rules”); WHEREAS, in providing services to one another, Affiliates of JPMC are also subject to United Slates federal, state and non-United States income tax laws of the various jurisdictions in which JPMC and its Affiliates operate which require that compensation be paid for services provided in accordance with specified transfer pricing rules, including Section 482 of the United States Internal Revenue Code of 1986, as amended (the “Tax Rules”); WHEREAS, JPMC has adopted an expense allocation policy entitled the Expense Allocation Policy and Guidelines (the “Expense Allocation Policy”) that is posted on the internal website maintained by JPMC and is available to, and accessible by, all Affiliates which sets out the principles that JPMC and its Affiliates are to follow in determining the component cost by Expense Product (as defined below) to make up the total compensation to be paid for Services such that JPMC and its Affiliates will be in compliance with the Bank Regulatory Rules and the Tax Rules with respect to those Services; WHEREAS, in allocating expenses it is understood that the Services performed by one JPMC affiliate to another represent an activity and the cost of this activity may be an amalgamation of more than one Expense Product;”

“WHEREAS, certain of the Expense Products within the scope of the Expense Allocation Policy are more fully described in the annual Product and Price Guides (us defined below) and any annotations thereto located on JPMC’s internal website in the Finance Workspace (it being understood that the items detailed in the Product and Price Guide may not necessarily be complete Services for purposes of value added tax or other analogous indirect taxes but rather may be viewed as components of Services); WHEREAS, the Expense Allocation Policy sets out the guidelines necessary to determine the nature of the Expense Products reflected in the Product and Price Guide that can be amalgamated to represent the consolidated price of Services provided for purposes of value added tax or other analogous indirect taxes; WHEREAS, in allocating expenses it is understood that the Services performed by one JPMC affiliate to another represent an activity and the cost of this activity may be an amalgamation of more than one Expense Product; …”

“(a) “Expense Product” shall mean the line items identified at the granular Product and Price Guide level to determine the individual cost component incurred and allocated in accordance with the Expense Allocation Policy by JPMC entities. (b) “IT Development Services” shall mean services for the development of information technology that are paid for by the Sponsor. (c) “PAR” shall mean the project and reporting system used by JPMC to track certain technology expenses and is commonly referred to as the “PAR” tool. (d) “Product & Price Guide” or “PPG” shall mean each SAP CO Product Reference Information table and the PAR (project accounting and reporting) Reference Data Information table, each of which is updated as needed and archived on an annual basis. (e) “Provider” shall mean JPMC or any Affiliate providing services pursuant to an Addendum, as such term is hereinafter defined, (f) “Recipient” shall mean JPMC or any Affiliate receiving services pursuant to an Addendum. (g) “SAP CO’” shall mean the accounting system which is used by JPMC to effect certain corporate expense allocations and is commonly referred to us the “SAPCO” tool. (h) “Services” shall mean the activity performed by an affiliate or another the consideration for which is represented by the total cost of Expense Products related to that activity. These Services may be provided by a Provider to a Recipient pursuant to an Addendum, (i) “Sponsor” shall mean the JPMC Affiliate that bears the risk of IT Development Services. (j) “Technology” shall mean the intellectual property rights arising out of IT Development Services performed or procured by Provider for Recipient(s). (k) “Technology Product” shall mean a product or service that utilizes Technology.”

“Support Services, Except as otherwise mutually agreed, or if the relevant amounts are de minimis, for Expense Products within the scope of each annual Product and Price Guide (as the same may be revised and updated from time to time) that are identified singly or collectively as Services for which amounts are to be cash settled through SAP CO, each Recipient agrees to pay for the Services provided to it (i) for Services that are identified in the relevant systems as charged at their estimated fair market value, the price specified therein and (ii) for all other such Services, its appropriate share of the fully-loaded costs of the Provider attributable thereto (plus, if applicable, a markup applied thereto as specified in an applicable Addendum or as otherwise agreed by the parties; provided that in all cases there will be a markup of 10% for IT Development Services performed by the Provider). It is understood and agreed that the detail provided on an invoice may encompass components of Services which in and of themselves are not complete services for purposes of value added tax or other analogous indirect taxes.”

“(c) Other Services. For all services not described in paragraph (b) above, the nature of the services to be provided, the charges therefor and other material terms and conditions shall in each instance be as mutually agreed, as evidenced in a Schedule to an Addendum to the Master Service Agreement. Charges for nil such services shall be based upon an arm’s length charge determined pursuant to the provisions of the Tax Rules and the Bank Regulatory Rules. It is understood that compensation paid for such other services rendered will be based on one of the following methods and in accordance with applicable laws, regulations or regulatory guidelines: (1) fully loaded costs with no markup or (2) estimated fair market value of rendering the services (which may include, as appropriate, fully loaded costs plus a markup thereon).”

“Technology. In consideration for the amounts paid by Sponsor to Provider in respect of IT Development Services as specified in 2(b) above, Provider grants an exclusive, worldwide , perpetual, fully paid up license to Sponsors) to make, have made, use, have used, sell, offer for sale, import, enhance, modify and make derivatives of Technology Products (“Technology License”) and agrees to assign all rights, title and interest in the Technology, subject to the Technology License to Sponsors), to JPMorgan Chase Bank, N.A, (“Holder”). To be clear, in no event shall Provider in its capacity as Provider of IT Development Services retain any economic interest or beneficial rights in the Technology. Holder shall not sell, license or otherwise dispose of the Technology to any third party not affiliated with JPMC without the consent of Sponsor(s). In the event that any or all Sponsors) are no longer Affiliates, such Sponsor may not withhold consent. Any patents, patent applications, copyrights, copyright applications or other filings necessary to perfect and preserve ownership of the Technology shall be the responsibility of the Holder, and Provider and Sponsor(s) agree to assist or comply with any request necessary to perfect and preserve such ownership. Holder shall not initiate a legal action arising out of or with respect to the Technology without consent from Sponsor(s). in the event that any or all Sponsor(s) are no longer Affiliates, such Sponsor(s) may not withhold consent. In the event either the Holder or Sponsor(s) becomes aware of an actual, alleged or potential claim of infringement, misappropriation or other violation of the Technology, then such party shall notify the other party, and the Sponsor may then request Holder to initiate suit at Sponsor(s)‘s direction and expense.”

“3. Accounting; Billing Procedures; Taxes, (a) Each Provider and each Recipient shall each maintain on their general ledgers special intercompany payable and receivable accounts for the exclusive accounting of the services, (b) For Services, the cost of which is determined on the basis of the Expense Products within the scope of the Product and Price Guide, the Provider thereof shall charge the Recipient monthly, or as otherwise agreed between the parties, by preparing an invoice (“Invoice”) addressed to the Recipient in accordance with the terms of this Master Service Agreement and describing on the Invoice (substantially in the form of Appendix A attached hereto, or in some other form to which the parties mutually agree) the Expense Products singly or collectively that form the basis of the consideration for Services performed and the charges therefore. For all such Services provided pursuant to this Agreement, and any other services set forth in a Schedule to an Addendum, the Provider shall provide such other details and documentation as may reasonably be requested by the Recipient in order to substantiate and approve the charges. (c) In addition to the charges for the services, the Recipient shall pay all applicable taxes based on or measured pursuant to this Agreement or the services, excluding taxes based upon the Provider's net income. The Provider agrees to provide all reasonable cooperation to the Recipient in the determination of any tax liability or in any claim or dispute the Recipient may have with any taxing authority relating to the imposition, computation or payment of any tax on a service. (d) Each version of the Product and Price Guide, the PAR Reference Data Information table and the monthly Invoice in effect at the end of each calendar year shall be archived for ten (10) years by JPMC in a system that permits access to each such version by each Provider and each Recipient. … 14. Additional Parties. Affiliates may subscribe to the terms and conditions of, and become parties to, this Master Service Agreement by executing an Addendum as described in Section 2 hereof, whereupon they shall be bound hereby to the same extent as if they had executed this Master Service Agreement, mutatis mutandis, … 17. No Agency. Unless otherwise expressly agreed, neither party shall be deemed to be the agent nor representative of the other, and neither party may bind the other party to any obligation or liability.”

“1. Services. Services, comprised of the amalgamation of one or more Expense Product in the Product and Price Guide, that are provided by JPMC Affiliate as a Provider, or received by JPMC Affiliate as a Recipient, will be identified and characterized on invoices. The Expense products forming the cost components of these Services will be described in detail in the Product and Price Guide. Where additional detail is required to describe the Service this may be described in a Schedule or Schedules attached hereto. Any Schedule attached hereto which describes a Service for which consideration is charged by means of Expense Products in SAPCO or PAR will prevail over the description in the Product and Price Guide in the event of a conflict between the Schedule and the Product and Price Guide. Other Services will be as described in a Schedule or Schedules attached hereto and made a part hereof.”

“2. Compensation. For Services the cost of which is determined on the basis of the Expense Products listed in the Product and Price Guide (as the same may be amended from time to time), JPMC Affiliate agrees to be bound by the provisions of the Master Service Agreement and this Addendum, both in charging for Services it provides to, and paying for Services it receives from, other Affiliates. With respect to other Services provided to JPMC Affiliate by an Affiliate, the JPMC Affiliate agrees to pay the Affiliate the amounts set forth on the applicable Schedule. 3. Master Service Agreement. Each Recipient and the Provider hereby agrees to be bound by the terms and conditions of the Master Service Agreement, and further agrees that this Addendum is hereby incorporated by reference therein and made a part thereof.”

“The main change from the October 2010 version is the addition of a business continuity-section.”

“(a) In General. A Provider may provide Services to a Recipient, from time to time, upon request of a Recipient(s) in accordance with this GMSA. The material terms and conditions upon which such Services are provided, other than as set forth in this GMSA, shall in each instance (i) be as mutually agreed as evidenced in an addendum to the GMSA (each, an “Addendum” and, collectively the “Addenda”) and/or (ii) in accordance with the instructions of Recipient from time to time. Additional requirements related to the outsourcing of certain Services within the EMEA region and the processing of European Economic Area Personal Information are set forth in Appendix A and B, respectively. This GMSA, its appendices, all such Addenda and any other documentation or tool(s) that details the activities performed hereunder together constitute a single agreement and are referred to collectively as the “Agreement.”

“3. Accounting: Billing Procedures; Taxes. (a) … (b) Each Provider of Services for which the compensation identified in Section 2 is paid through use of the SAPCO tool shall prepare and issue to each Recipient of such Services a monthly Invoice. The Invoice shall identify the Service(s) provided and, for each such Service, the compensation due, and shall be addressed to the Recipient in accordance with the terms of this Agreement. For all such Services, and any other applicable Services, the Provider shall provide such other details, invoices, and documentation as may reasonably be requested by the Recipient in order to substantiate and approve the charges. (i) When such compensation is calculated in SAPCO, the compensation shall (A) consist of the Recipient’s appropriate share of the Provider’s fully-loaded costs attributable to such Services (which costs shall comprise all component Expense Products) and any applicable markup (which may be applied to some or all of the costs) or such other arm’s length amount as determined through SAPCO; and (B) be reflected on an Invoice issued by the Provider specifying the compensation for each Service provided in accordance with Appendix D. (ii) …”

“BUSINESS DELIVERY AND SUPPORT SERVICES The Services identified in this Appendix shall consist of: (1) those essential for and specific to Recipient’s business transactions (Business Delivery Services), and (2) all other Services (Support Services). Business Delivery Services are identified separately for each material JPMC line of business. The Services descriptions in this Appendix may be modified for particular Affiliates in Schedules to Addenda. A. BUSINESS DELIVERY SERVICES Business Delivery Services consist of Transaction Execution, Fund Administrative Management, and Sales and Relationship Management Services which include but are not limited to the following. 1. Transaction Execution Services: As more specifically described below for particular lines of business of JPMC and its Affiliates, or divisions of such lines of business, Transaction Execution Services entail Recipient’s outsourcing to Provider, and Provider’s assuming responsibility for, end-to-end technical fulfilment of transactions between Recipient and Clients. In performing Transaction Execution Services for a Recipient, Provider is responsible for all personnel, operations, technology, and ancillary activities necessary or helpful to the performance of the Services. Provider is also responsible for, in consultation with the Recipient, identifying, planning, developing, operationalizing, and implementing appropriate systems and technologies. a) For the Corporate Investment Bank (CIB) Markets and Capital Markets businesses, Transaction Execution Services consist of any or all of the following: i. by means of the appropriate technology, operations and other relevant support functions facilitate interaction between Recipient and its Clients in trading relationships, including through the technology platforms calculating and electronically quoting prices for Recipient or providing prices for Recipient to quote so that Clients can trade with Recipient; through systems accept orders or transmit orders for acceptance on behalf of Recipient’s Clients, systematically reviewing trade and order parameters and terms to ensure accuracy and acceptability; and execute electronic transactions for Recipient, subject to the control of and the limits set by Recipient; ii. fulfilling Recipient’s obligations to Clients by ensuring agreement as to trade details, recording transactions in Recipient’s books, settling securities and cash obligations arising under the agreement, and accepting settlement amounts from Clients; iii. facilitating collateral processing for Recipient, including by calling for more collateral, agreeing to repayment of collateral in line with valuation of collateral and transactions, and setting-off collateral and settlement through payment or delivery of cash or securities; iv. carrying out related activities for Recipient, to include initial set-up of Clients and data, including any standard transaction elements necessary for trade acceptance; performing pre-trade customer checks and validations, implementing regulatory and legal compliance measures and reporting, complying with post-trade controls and reconciliations, and setting up Client asset management tools; and v. otherwise enabling the processing, management and execution of trades. b) For the CIB Banking (including Wholesale Payments, Lending and Other divisions), Commercial Bank, and Consumer and Community Banking (CCB) General Banking and Consumer Finance businesses Transaction Execution Services consist of any or all of the following: i. end-to-end processing of cash transfers and other cash transactions for Recipient and its Clients, through maintenance of bank accounts and effecting cash movements through appropriate debits and credits to those accounts; ii. creating and sending appropriate payment instructions for Recipient based on requests from Clients and validating payment instructions received by Recipient; iii. ensuring appropriate reporting for all Recipient and Client transactions and related balances and booking of all changes to the value of accounts in Recipient’s books and records; iv. authorizing Recipient transactions with third-party banks and clearing banks; v. assigning cash received by Recipient to appropriate Client accounts in accordance with payment instructions from other banks, and reconciling cash received and paid with advice from third-party banks and other Affiliates; vi. booking loans and overdrafts agreed by Recipient into Recipient’s books and records; vii. processing loan repayments and interest into Recipient’s books and, where relevant, directly debiting amounts due from Client accounts; viii. processing drawdown requests on credit extended by Recipient, including making payments into the designated Client account; ix. liaising with Clients in relation to payments, account queries, interest and loan amounts and related activities, for Recipient; and x. otherwise ensuring that accounts maintained by Recipient are operated appropriately, including by conducting anti-money-laundering and sanctions checks, and fee processing and billing in relation to Client accounts and transactions. c) For the CIB Securities Services business, Transaction Execution Services consist of any or all of the following: i. asset servicing, trade processing and maintenance of custody records/accounts for Recipient’s Clients; ii. processing income amounts received by Recipient’s Clients as dividends or interest payments and implementing associated withholding and reporting processes; iii. calculating and reconciling cash received by Recipient and appropriate crediting of amounts to Client accounts; iv. processing all relevant corporate action trades for Recipient in accordance with instructions received; v. ensuring delivery or receipt of securities for Recipient where the Client has instructed such transactions; vi. establishing ownership of securities with the relevant central securities depository for Recipient; vii. processing for Recipient all trade-settlement related payments into or out of relevant accounts; viii. ensuring recognition of ownership by Clients of securities, including by giving all necessary instructions to sub-custodians; and ix. fee processing and billing for Recipient in relation to transactions. d) For the Wealth Management business, Transaction Execution Services consist of: i. asset servicing, trade processing and maintenance of bank and custody accounts for Recipient’s Clients; ii. facilitating interaction between Recipient and its Clients in trading relationships, including through: initial set-up of Clients, accepting orders, systematically reviewing trade and order parameters to ensure accuracy and acceptability, and processing, managing and executing trades; iii. fulfilling Recipient’s obligations to Clients to process transactions, ensuring agreement as to trade details, and settling securities and cash obligations; iv. end-to-end processing of cash transfers and other cash transactions for Recipient and its Clients through maintenance of bank accounts and effecting cash movements through appropriate debits and credits to those accounts; v. creating appropriate payment instructions based on requests received from Recipient’s Clients; vi. performing reporting for all Recipient transactions and related balances; vii. booking of all changes to the value of Client accounts in Recipient’s books and records; viii. authorizing Recipient transactions with third-party banks and clearing banks; ix. assigning cash received by Recipient to appropriate Client accounts in accordance with payment instructions from other banks and reconciling cash received and paid with advice from third party banks and other Affiliates; x. processing all relevant corporate action trades for Recipient in accordance with instructions received; xi. ensuring delivery or receipt of securities for Recipient where the Client has instructed such transactions; xii. establishing ownership of securities with the relevant central securities depository for Recipient; xiii. booking loans and overdrafts agreed by Recipient into Recipient’s books and records; xiv. processing loan repayments and interest into Recipient’s books and, where relevant, directly debiting amounts due from Client accounts; xv. processing drawdown requests on credit extended by Recipient, including making payments into the designated Client account; and xvi. fee processing and billing for Recipient in relation to transactions. e) For the CCB Card Issuance and Acquiring business, Transaction Execution Services consist of any or all of the following: i. performing end-to-end settlement and individual transaction card payment processes related to Recipient’s card acquirer and/or card issuer business, including by capturing transactions; validating and authorizing transactions in accordance with credit limits and other relevant controls, including money laundering and sanctions requirements; reconciling and providing relevant substantiation of settlement amounts with card schemes and other scheme members where required; maintaining accounts and credit and debit relevant amounts from those accounts; settling relevant amounts with card schemes and/or other scheme members; processing chargebacks and other amendments and corrections; and ii. provision of Client service and related operational activities for Recipient required to support the delivery of the Services set out in (e)(i) above .…”. 2. Fund Administrative Management Services … 3. Sales and Relationship Management Services … B. SUPPORT SERVICES Support Services include, but are not limited to the following Services: 1. Business Technology Services: Business Technology Services consist of production support, maintenance and enhancement of business systems that are not Business Delivery Services. 2. Audit: Audit Services consist of reviewing the adequacy and effectiveness of risk controls and providing opinions, analyses and recommendations concerning the respective processes, activities and departments/entities. 3. Central Technology & Operations: Central Technology and Operations Services consist of providing and supporting information technology, day-to-day technology implementation and support, and information technology development for Recipient’s corporate functions and legal-entity operations. 4. Corporate Finance & Finance Aligned: Corporate Finance & Finance Aligned Services consist of providing financial accounting and management accounting and reporting functions, including treasury support and analysis, tax risk management, and advisory and accounting support services. 5. Human Resources Services: Human Resources Services consist of support for resource planning, organizational development, human resources policy and procedure, and training and development for all employees. 6. Insurance Services: Insurance Services consist of (a) recovering share of group insurance premiums incurred by the group, including casualty insurance, financial insurance, professional liability insurance and property insurance; and (b) managing risks, including casualty insurance, financial insurance, professional liability insurance and property insurance. 7. Legal & Compliance Services: Legal Services consist of providing legal advice and risk management associated with Recipient’s activities by identifying risks and pertinent local laws and regulations, and implementing policies and procedures to mitigate risk. Compliance Services consist of providing oversight, guidance and independent challenge associated with Recipient’s activities by identifying, measuring, assessing, and monitoring compliance risks across the applicable laws and regulations for the jurisdictions and issuing policies and evaluating compliance control processes designed to mitigate these risks. 8. Real Estate & Security Services: Real Estate & Security Services consist of providing dedicated premises or spaces within buildings for Affiliates including related management such as lease, repair, maintenance, global security and investigation. 9. Risk Management & Advisory Services: Risk Management and Advisory Services consist of providing assistance with respect to local risk management functions, and regional risk-monitoring for market risk, credit risk, operational risk, and compliance. 10. Research Services: Research Services consist of providing market research for global and emerging markets. 11. Strategy Marketing & Communications Services: Strategy Marketing & Communications Services consist of providing public relations management and coordination and internal (among JPMC and its Affiliates) and external communications. 12. Operational Services: Operations Services consist of sourcing, procurement, event management and oversight, business and product management, and other activities supporting the operation and implementation of global/regional business.”. a) For the Corporate Investment Bank (CIB) Markets and Capital Markets businesses, Transaction Execution Services consist of any or all of the following: i. by means of the appropriate technology, operations and other relevant support functions facilitate interaction between Recipient and its Clients in trading relationships, including through the technology platforms calculating and electronically quoting prices for Recipient or providing prices for Recipient to quote so that Clients can trade with Recipient; through systems accept orders or transmit orders for acceptance on behalf of Recipient’s Clients, systematically reviewing trade and order parameters and terms to ensure accuracy and acceptability; and execute electronic transactions for Recipient, subject to the control of and the limits set by Recipient; ii. fulfilling Recipient’s obligations to Clients by ensuring agreement as to trade details, recording transactions in Recipient’s books, settling securities and cash obligations arising under the agreement, and accepting settlement amounts from Clients; iii. facilitating collateral processing for Recipient, including by calling for more collateral, agreeing to repayment of collateral in line with valuation of collateral and transactions, and setting-off collateral and settlement through payment or delivery of cash or securities; iv. carrying out related activities for Recipient, to include initial set-up of Clients and data, including any standard transaction elements necessary for trade acceptance; performing pre-trade customer checks and validations, implementing regulatory and legal compliance measures and reporting, complying with post-trade controls and reconciliations, and setting up Client asset management tools; and v. otherwise enabling the processing, management and execution of trades. b) For the CIB Banking (including Wholesale Payments, Lending and Other divisions), Commercial Bank, and Consumer and Community Banking (CCB) General Banking and Consumer Finance businesses Transaction Execution Services consist of any or all of the following: i. end-to-end processing of cash transfers and other cash transactions for Recipient and its Clients, through maintenance of bank accounts and effecting cash movements through appropriate debits and credits to those accounts; ii. creating and sending appropriate payment instructions for Recipient based on requests from Clients and validating payment instructions received by Recipient; iii. ensuring appropriate reporting for all Recipient and Client transactions and related balances and booking of all changes to the value of accounts in Recipient’s books and records; iv. authorizing Recipient transactions with third-party banks and clearing banks; v. assigning cash received by Recipient to appropriate Client accounts in accordance with payment instructions from other banks, and reconciling cash received and paid with advice from third-party banks and other Affiliates; vi. booking loans and overdrafts agreed by Recipient into Recipient’s books and records; vii. processing loan repayments and interest into Recipient’s books and, where relevant, directly debiting amounts due from Client accounts; viii. processing drawdown requests on credit extended by Recipient, including making payments into the designated Client account; ix. liaising with Clients in relation to payments, account queries, interest and loan amounts and related activities, for Recipient; and x. otherwise ensuring that accounts maintained by Recipient are operated appropriately, including by conducting anti-money-laundering and sanctions checks, and fee processing and billing in relation to Client accounts and transactions. c) For the CIB Securities Services business, Transaction Execution Services consist of any or all of the following: i. asset servicing, trade processing and maintenance of custody records/accounts for Recipient’s Clients; ii. processing income amounts received by Recipient’s Clients as dividends or interest payments and implementing associated withholding and reporting processes; iii. calculating and reconciling cash received by Recipient and appropriate crediting of amounts to Client accounts; iv. processing all relevant corporate action trades for Recipient in accordance with instructions received; v. ensuring delivery or receipt of securities for Recipient where the Client has instructed such transactions; vi. establishing ownership of securities with the relevant central securities depository for Recipient; vii. processing for Recipient all trade-settlement related payments into or out of relevant accounts; viii. ensuring recognition of ownership by Clients of securities, including by giving all necessary instructions to sub-custodians; and ix. fee processing and billing for Recipient in relation to transactions. d) For the Wealth Management business, Transaction Execution Services consist of: i. asset servicing, trade processing and maintenance of bank and custody accounts for Recipient’s Clients; ii. facilitating interaction between Recipient and its Clients in trading relationships, including through: initial set-up of Clients, accepting orders, systematically reviewing trade and order parameters to ensure accuracy and acceptability, and processing, managing and executing trades; iii. fulfilling Recipient’s obligations to Clients to process transactions, ensuring agreement as to trade details, and settling securities and cash obligations; iv. end-to-end processing of cash transfers and other cash transactions for Recipient and its Clients through maintenance of bank accounts and effecting cash movements through appropriate debits and credits to those accounts; v. creating appropriate payment instructions based on requests received from Recipient’s Clients; vi. performing reporting for all Recipient transactions and related balances; vii. booking of all changes to the value of Client accounts in Recipient’s books and records; viii. authorizing Recipient transactions with third-party banks and clearing banks; ix. assigning cash received by Recipient to appropriate Client accounts in accordance with payment instructions from other banks and reconciling cash received and paid with advice from third party banks and other Affiliates; x. processing all relevant corporate action trades for Recipient in accordance with instructions received; xi. ensuring delivery or receipt of securities for Recipient where the Client has instructed such transactions; xii. establishing ownership of securities with the relevant central securities depository for Recipient; xiii. booking loans and overdrafts agreed by Recipient into Recipient’s books and records; xiv. processing loan repayments and interest into Recipient’s books and, where relevant, directly debiting amounts due from Client accounts; xv. processing drawdown requests on credit extended by Recipient, including making payments into the designated Client account; and xvi. fee processing and billing for Recipient in relation to transactions. e) For the CCB Card Issuance and Acquiring business, Transaction Execution Services consist of any or all of the following: i. performing end-to-end settlement and individual transaction card payment processes related to Recipient’s card acquirer and/or card issuer business, including by capturing transactions; validating and authorizing transactions in accordance with credit limits and other relevant controls, including money laundering and sanctions requirements; reconciling and providing relevant substantiation of settlement amounts with card schemes and other scheme members where required; maintaining accounts and credit and debit relevant amounts from those accounts; settling relevant amounts with card schemes and/or other scheme members; processing chargebacks and other amendments and corrections; and ii. provision of Client service and related operational activities for Recipient required to support the delivery of the Services set out in (e)(i) above .…”

“In broad terms, IETI sought to take individual cost allocations and amalgamate them at the level in the hierarchy where the individual components formed a recognisable function and contributed to a single service. It also, critically, enabled the VAT Team to identify that the service in question was received by a particular business area, or sub-business.”

“… to ensure that all costs are allocated (to the extent practicable) to the relevant business areas that benefit from the services.”

“… an internal solution to produce invoices for services so that we could quantify the consideration for those services and account for UK VAT. IETI did not define the nature of the contractual services provided. It was merely a VAT invoicing solution in respect of the charges for services provided under the 2006 GMSA.”

“… trying to identify those things that were close to the actual conducting of the business, as opposed to those that were supportive and controlling and governing that business.”

“… any specific supply with exempt characteristics that represents a clear exempt supply from CBNA to SPLC”

“… challenge we were trying to address with the IETI tool”

“… the integrated service as a whole is often more than, or different from, the sum of its component parts”

“… we have to be able to prove that our algorithms can handle large price moves, if it can handle a certain number of trades per second, if it can handle a certain P&L growth.”

“… the decision of whether or not to go ahead with the trade.”

“The bid offer spread that I would charge clients for various financial transactions would be a function of the risks that we are assuming under that transaction.”

“… assessing what amount of risk we carry at each point of time is critical to determining what we’re going to be doing in terms of, like, the liquidity we’re going to be providing to the market or how we’re going to be responding to client enquiries or how we might want to increase or reduce the risk that we run at each point of time.”

“The first element is that we have to manage the risk that comes with each new transaction with a client (I will refer to these simply as “client transactions”). We have to evaluate the risks that come with each client transaction and identify how we can mitigate them to the best of our ability. In order to mitigate the risk arising from client transactions, it may be necessary to enter into other client transactions that also serve as hedging transactions. This management of market risk needs to be factored into the pricing we offer our clients before we transact and determines the spread on any particular transaction. I will give examples of hedging transactions later in this statement. The level of risk that we are exposed to varies between different types of transactions, as does the length of time for which we remain exposed. (a) Some transactions expose SPLC to risk for no more than a day or two. For example, a Cash Equities (listed shares) transaction in which we act as riskless principal (where we purchase shares to meet a specific client order) has very limited market risk because we are unlikely to hold the shares for a long time before selling them onto the client at the price we purchased them for (plus our transaction fee). It is only those transactions where SPLC buys shares to hold as inventory that SPLC becomes more exposed to market risk. (b) Other transactions will expose SPLC to risk for several months or even years. For example, a complex OTC derivative transaction in which SPLC enters into financial commitments for a period of time, where those commitments depend on underlying assets that are constantly changing values. The second element of our risk management activities is closely related to the first element and pertains to the management of our overall risk position arising from all our client and hedging transactions, we refer to this as our “portfolio risk”

“… hedging may involve entering – SPLC entering offsetting transactions with other clients.”

“The vast majority of our transactions we perform delta hedging as soon as possible upon execution of the transaction.”

“Hedging is most commonly an external transaction. In every case where we conduct a transaction, our primary objective will be to find a hedge which costs the minimum amount or, where possible, indeed, captures a further bid offer with another client trade. So the exercise of hedging is really one of the differentiating factors in whether we make money as a business versus our competitors. The more that we are able to manage out of our risk using other client transactions, the more profitable our business is. So I struggle with the explanation that hedging is an internal transaction because we’d always think about our hedging opportunity with respect to offsetting risks elsewhere in the market”

“… configuring how the algorithm should be parametrised, but – so the human is there as oversight whereas the technology is the engine that’s actually interacting with the markets and doing the actual electronic transfer, electronic messaging.”

“… if we go back to what happened a few weeks ago with Credit Suisse, which was in the press … throughout the weekend the regulator decided to buy down those particular securities so Operations, throughout Friday/Saturday, they had to go through every single transaction to ensure that that process had happened.”

“There would always be a system needed to calculate. There’s no way this could ever be done without, and indeed sometimes the system is pretty much the only input to the price and the trader will not deviate from the price that the system produces.”

“… summarise the swaps that we believe are best submitted to the compression process, that we would get most benefit from compressing. And they work with both technology and with front office in determining a level of tolerance of remaining risk after the compression run or valuation difference if we’re prepared, for example, to accept a small amount of valuation difference for the sake of compressing a large number of trades. So that is a dialogue every time there is a compression run that the operations team lead with technology and with the front office”

“… would also themselves control the process through which we submit a portfolio.”

“… bid offer spread that I would charge clients for various financial transactions would be a function of the risks that we are assuming under that transaction.”

“… the vast majority of our transactions we perform delta hedging as soon as possible upon execution of the transaction.”

“We are unclear as to whether the [4 October 2019 Letter] applies to EDG (and by implication “Markets” generally) only or whether it applies to all of the business areas, to include non-Markets and non-CIB businesses (ie private wealth, fund services, treasury services and custody) and therefore the VAT assessments as a whole.”

“If it is HMRC’s intention that the [4 October 2019 Letter] should apply with respect to all of the business areas, then we have concerns as to whether HMRC have sufficient detail to come to a final decision at this stage. This is because there are significant factual differences between EDG (and by implication “Markets” generally) and the other businesses – not only the nature of the products that are being supplied but also the fact that different legal entities are involved other than CBNA and SPLC. There are also different legal rules applicable across the different businesses, specifically with respect to the different VAT exemptions in question.”

“Further to our meetings, correspondence and HMRC’s internal governance procedures, I am writing to confirm HMRC’s decision with regard to the VAT treatment of the intra-group supplies from JP Morgan Chase Bank NA (“CBNA”) to JP Morgan Securities Plc (“SPLC”) in the trading sector of SPLC’s business that is referred to as “Markets”.”

“As discussions remain ongoing and we have yet to arrive at a clear conclusion regarding the correct amounts due, HMRC feel it is appropriate to issue further assessments to protect our position from 05/18 onwards. We do not intend to enforce the assessments regarding the Non-Markets sector while constructive discussions are ongoing. However, as we have issued a decision in relation to the Markets sector (ref [the Liability Decision]) we will be writing to you again to set out the amounts due in relation to the Markets trading sector once we have agreed the correct figures.”

“We have finally concluded our discussions and issued a decision in relation to the services relating to the Markets business. We have subsequently arrived at the total amount of VAT that HMRC believe is due from 06/13 to 12/19 on the Markets services deemed exempt by JPM.”

“48. It has been settled law for many years that there are two types of single composite supply, namely: (1) where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which do not constitute for customers an end in themselves but a means of better enjoying the principal service supplied (see Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] STC 270, [1999] ECR I-973 (‘CPP’) at [30]); and (2) where two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (see Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2006] STC 766, [2005] ECR I-9433 (‘Levob’) at [22]). 49. I attempted to summarise the key principles for determining whether a particular transaction should be regarded as a single composite supply or as several independent supplies (whether of a CPP or Levob type) in Honourable Society of Middle Temple v HMRC [2013] UKUT 250 [2013] STC 1998 (‘Middle Temple’), at [60]: ‘(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.’” 50. Since Middle Temple, the CJEU has given further guidance on how to determine whether a transaction that comprises a bundle of elements and acts should be regarded as a single composite supply or several separate supplies. In Case C-581/19 Frenetikexito – Unipessoal Lda v Autoridade Tributária e Aduaneira (‘Frenetikexito’), the CJEU identified three exceptions to the principle that each individual supply must be regarded as distinct and independent for VAT purposes. 51. The first exception is where two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. This is the single supply first identified in Levob. In paragraphs 22 to 33 of her opinion, which were specifically approved by the CJEU, the Advocate General (Kokott) in Frenetikexito set out how to determine whether a bundle of goods and services is a Levob type single supply. The first step is to ascertain the essential features or characteristic elements of the transaction from the perspective of the ‘typical consumer’, ie the typical recipient of the supply. The perspective of the typical consumer is to be determined according to the generally accepted view, ie the understanding of the general public. The Advocate General then identified four “indications” which should be considered from the perspective of the typical consumer. These are: (1) Indivisibility of the elements of the supply, ie do the individual elements of the supply merge into a new distinct supply such that, in the generally accepted view, there is only a single supply? (2) Separate availability of the supplies, ie are the different elements that make up the supply available separately or must the customer take all the elements together? (3) Indispensability of the elements of the supply for the aim of the supply, ie does the transaction have a single economic aim or is the combination of different elements important to the typical recipient of the supplies? (4) Separate invoicing as an indication that supplies are divisible, ie is there a single invoice and price for all the elements or are they invoiced and/or charged separately? 52. The CJEU condensed the Advocate General’s observations into a single paragraph as follows (cases references removed): “39 … it is necessary to identify the characteristic elements of the transaction in question from the perspective of the average consumer. The body of evidence relied on for this purpose comprises various elements, the first of which, being of an intellectual nature and of decisive importance, seek to establish whether or not the elements of the operation in question are indivisible and its economic purpose, whether or not this is unique, and the second of which, being of a substantive nature and not of decisive importance, support, where appropriate, the analysis of the first elements, such as separate access or joint access to the services in question or the existence of a single invoice or a separate invoice.” 53. Although the CJEU endorsed the Advocate General’s analysis, it went further than she did. The CJEU did not call two of the matters to be considered, ie indivisibility and indispensability, “indications” but described them as “of decisive importance” while assigning the other two elements only a supporting, and not decisive, role. 54. The second exception to the principle that each supply must be regarded as a distinct and independent supply is where one or more elements are to be regarded as constituting the principal supply while, by contrast, other elements are to be regarded as one or more ancillary supplies which share the tax treatment of the principal supply. This is the single supply first clearly identified in CPP. The CJEU described the criteria to be considered in relation to a CPP type supply in paragraphs 41 and 42 (cases references removed): “41 It follows from the Court’s case-law that the first criterion to be taken into consideration in this respect is the absence of a distinct purpose of the supply from the perspective of the average consumer. Thus, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a means of better enjoying the principal service supplied. 42 The second criterion, which in fact constitutes evidence of the first, is that account should be taken of the respective value of each of the benefits making up the economic transaction, one being minimal or even marginal in relation to the other.” 55. The third exception to the principle that every individual supply is independent is the provision that ‘closely related activities’ share the exemption of an exempt supply in order to make that exemption fully effective. This exception differs from the other two in three respects: (1) it is not derived from case law but is contained in the PVD; (2) it does not have general application but is limited to specific exempt supplies; and (3) it does not create a single supply from different elements. 56. The scope and nature of the third exception is determined by reference to the particular Article of the PVD in which it appears. The Advocate General in Frenetikexito gave the following example at paragraph 45 of her opinion: “An example is the exemption of hospital and medical care under Article 132(1)(b) of the VAT Directive. In order to achieve the therapeutic aim, further supplies which are distinct from pure medical and hospital care may be necessary in an individual case, such as the services provided by an external laboratory. Making such supplies subject to VAT would run counter to the aim of reducing costs for the health system. The legislature therefore declares in Article 132(1)(b) of the VAT Directive that ‘closely related activities’ are also exempt alongside the care itself.” 57. The CJEU in Frenetikexito referred to the third exception identified by the Advocate General but did not discuss it as it was not applicable on the facts of that case.” (1) where one or more supplies constitute a principal supply and the other supply or supplies constitute one or more ancillary supplies which do not constitute for customers an end in themselves but a means of better enjoying the principal service supplied (see Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) [1999] STC 270, [1999] ECR I-973 (‘CPP’) at [30]); and (2) where two or more elements or acts supplied by the taxable person are so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split (see Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2006] STC 766, [2005] ECR I-9433 (‘Levob’) at [22]). ‘(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.’” (1) Indivisibility of the elements of the supply, ie do the individual elements of the supply merge into a new distinct supply such that, in the generally accepted view, there is only a single supply? (2) Separate availability of the supplies, ie are the different elements that make up the supply available separately or must the customer take all the elements together? (3) Indispensability of the elements of the supply for the aim of the supply, ie does the transaction have a single economic aim or is the combination of different elements important to the typical recipient of the supplies? (4) Separate invoicing as an indication that supplies are divisible, ie is there a single invoice and price for all the elements or are they invoiced and/or charged separately? “39 … it is necessary to identify the characteristic elements of the transaction in question from the perspective of the average consumer. The body of evidence relied on for this purpose comprises various elements, the first of which, being of an intellectual nature and of decisive importance, seek to establish whether or not the elements of the operation in question are indivisible and its economic purpose, whether or not this is unique, and the second of which, being of a substantive nature and not of decisive importance, support, where appropriate, the analysis of the first elements, such as separate access or joint access to the services in question or the existence of a single invoice or a separate invoice.” (1) it is not derived from case law but is contained in the PVD; (2) it does not have general application but is limited to specific exempt supplies; and (3) it does not create a single supply from different elements. “An example is the exemption of hospital and medical care under Article 132(1)(b) of the VAT Directive. In order to achieve the therapeutic aim, further supplies which are distinct from pure medical and hospital care may be necessary in an individual case, such as the services provided by an external laboratory. Making such supplies subject to VAT would run counter to the aim of reducing costs for the health system. The legislature therefore declares in Article 132(1)(b) of the VAT Directive that ‘closely related activities’ are also exempt alongside the care itself.”

“By virtue of s 6(1)(a) of the European Union (Withdrawal) Act 2018 (‘the Withdrawal Act’), a court or tribunal is not bound by any principles laid down or any decisions made by the European Court on or after that date.”

“… by virtue of s 6(2) of the Withdrawal Act we may have regard to the Court’s judgment in Frenetikexito and we consider it particularly useful to do so in circumstances where that judgment attempts to summarise principles from existing law by which we are bound.”

“116. We remind ourselves that we must decide whether Genmed’s supply to the Trust under the Agreement is a single composite or integrated supply of managed theatre services which falls within the description in [the Contracted-Out Service Direction]. The parties agree that we should apply the Levob test in answering this question, namely, whether, from the perspective of a typical consumer, two or more elements or acts supplied by the taxable person are so closely linked that they form (when viewed objectively) a single, indivisible economic supply which it would be artificial to divide up or split. We accept that we must stand back and apply this test holistically. But in the present case we find it useful to break it down into its constituent elements and to address the following four issues: (i) Are the different elements of the transaction closely linked? (ii) Do they form a single, indivisible economic supply? (iii) Would it be artificial to split the different elements into separate supplies? (iv) How would the typical consumer regard the different elements of the transaction? 117. In addressing these questions we have had regard to the CJEU’s judgment in Frenetikexito and have checked our conclusions against the test of decisive importance set out at para 39, namely, whether or not the elements of the operation in question are indivisible and share an economic purpose. We also have in mind the four questions set out by the Advocate General at paras 22 and 23: (1) Indivisibility of the elements of the supply: Do the individual elements of the supply merge into a new distinct supply such that, in the generally accepted view, there is only a single supply? (2) Separate availability of the supplies: Are the different elements that make up the supply available separately or must the customer take all the elements together? (3) Indispensability of the elements of the supply for the aim of the supply: Does the transaction have a single economic aim or is the combination of different elements important to the typical recipient of the supplies? (4) Separate invoicing as an indication that supplies are divisible: Is there a single invoice and price for all the elements or are they invoiced and/or charged separately?” (i) Are the different elements of the transaction closely linked? (ii) Do they form a single, indivisible economic supply? (iii) Would it be artificial to split the different elements into separate supplies? (iv) How would the typical consumer regard the different elements of the transaction? (1) Indivisibility of the elements of the supply: Do the individual elements of the supply merge into a new distinct supply such that, in the generally accepted view, there is only a single supply? (2) Separate availability of the supplies: Are the different elements that make up the supply available separately or must the customer take all the elements together? (3) Indispensability of the elements of the supply for the aim of the supply: Does the transaction have a single economic aim or is the combination of different elements important to the typical recipient of the supplies? (4) Separate invoicing as an indication that supplies are divisible: Is there a single invoice and price for all the elements or are they invoiced and/or charged separately?”

“In this case, of course we’re only concerned with the second exception to the general principle that every supply should normally be regarded as distinct and independent, it is the Levob exception. CPP can’t apply because each and every service supplied by CBNA to SPLC, whether within the overall category of support services or the overall category of business delivery services, is an aim in itself for SPLC. One element isn’t ancillary to the other or others, there is no predominant element.”

“ … in accordance with the case-law of the Court, to take account of the objective nature of the transaction and not the subjective intention of the parties.”

“… the analysis of what is being supplied depends, in any given case, on economic realities of the transaction, that being a ‘fundamental criterion’ for the application of the common system of VAT (see Revenue and Customs Comrs v Airtours Holidays Transport Ltd [2016] UKSC 21, [2016] STC 1509, [2016] 4 WLR 87, at [48], citing Revenue and Customs Comrs v Loyalty Management UK Ltd, Baxi Group Ltd v Revenue and Customs Comrs (Joined cases C-53/09 and C-55/09) EU:C:2010:590, [2010] STC 2651,[2010] ECR I-9187, at paras 39–40); the contracts are the most useful starting point in that exercise, but not necessarily the end point: see WHA Ltd v Revenue and Customs Comrs [2013] UKSC 24, [2013] STC 943, [2013] 2 All ER 907.”

“… as I said in Secret Hotels2 Ltd (formerly Med Hotels Ltd) v HMRC [2014] UKSC 16, [2014] STC 937, [2014] 2 All ER 685 (at [35]), when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.”

“I accept that, when determining the nature of a transaction for VAT purposes, the court must look at the economic purpose of the transaction. However, the starting point is to determine what the parties have agreed. In my judgment, the correct reading of Newey and Secret Hotels2 is that the court only goes behind the contract if the contract does not reflect the true agreement between the parties.”

“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.”

“…be reflected on an Invoice issued by the Provider specifying the compensation for each Service provided in accordance with Appendix D”

“… good example of where the terms of the agreement are incompatible with the reality of the relationship between CBNA and SPLC. A number of examples were given by the witnesses when discussing the example transactions of situations in which CBNA quite clearly acts on SPLC’s behalf. … But just in those circumstances, as the authorities you’ve been taken to make plain, for the purposes of VAT, economic reality prevails. Economic reality trumps the contractual terms in those circumstances. It’s the point Lady Justice Whipple recognised in paragraph 61 of her judgment in Mainpay … that I took you to. She reminded us there that an: “... analysis of what is being supplied depends, in any given case, on [the] economic [reality] of the transaction ... ”

“I think it is clear that the starting point is to identify the individual elements of a single complex supply. Whether that supply falls to be treated as exempt will generally (but not necessarily exclusively) be determined by reference to predominance, but this might either be a single predominant element or in some cases a combination of elements. The test is an objective one, from the perspective of a typical consumer, and based on the contract and the economic realities. I agree with Mr Cordara [counsel for the appellant]that the reference by Advocate General Tizzano to “economic purpose”, referred to by Jonathan Parker LJ in Tesco (see [66] above) is relevant. Also relevant are the descriptions referred to by the same judge in EDS at 130, where he referred to the expression “single or core supply” used by Laws LJ in FDR at [62] and to the references to “the essential feature of the scheme or its dominant purpose” and “main objective” by Lord Slynn in the House of Lords decision in CPP, [2001] STC 174 at [25] and [26].”

“In the FTT, as before us, both parties agreed that the services provided by Target to Shawbrook comprise a single (composite or complex) supply for VAT purposes rather than multiple separate supplies. The parties disagreed, however, in their view of how the supply should be classified and whether it was exempt or standard rated. In relation to the first issue, the FTT concluded, at [81], that “the starting point is to identify the individual elements of a single complex supply” and that “whether that supply falls to be treated as exempt will generally (but not necessarily exclusively) be determined by reference to predominance, but this might either be a single predominant element or in some cases a combination of elements”

“41. However, it is apparent from para 27 of this judgment that it is not possible to regard the elements of which that service consists as constituting a principal service on the one hand and an ancillary service on the other. Those elements must be placed on the same footing. 42. In that regard, it is established case law that the terms used to specify the exemptions referred to in art 135(1) of Directive 2006/112 are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see, inter alia, Assurandør-Societetet, acting on behalf of Taksatorringen v Skatteministeriet (Case C-8/01) [2006] STC 1842, [2003] ECR I-13711, para 36, and DTZ Zadelhoff (para 20)). 43. Consequently, since that service may be taken into account for VAT purposes only as a whole, it cannot be covered by art 135(1)(f) of Directive 2006/112.”

“77. In light of the guidance given by the CJEU (as summarised above), the starting point is that the financial services exemptions contained in art 135(1)(d) have an autonomous EU law meaning (in order to avoid divergences in the application of the VAT system as between member states); and are to be strictly construed, though that is not to be equated with a restricted construction. In other words, the exemptions are to be construed in a way that does not have the effect of extending their scope beyond the fair meaning of the words used, having regard to the context and the objective of the common system of VAT. 78. Nor is an exclusively literal interpretation appropriate: for example, although general accountancy services that include conducting negotiations on a client’s behalf with HMRC, would, as a matter of ordinary language, appear on the face of it to fall within ‘transactions, including negotiation, concerning … payments, transfers’, nobody doubts that such services are not within the exemption. As Laws LJ put it in FDR, ‘Something altogether more intimate to the actual process of moving money is required.’ 79. More specifically, following SDC it is clear that the exemption is determined by reference to the nature of the services provided, and not by reference to the person supplying or receiving the service. To fall within the exemption, the transactions in question must be financial transactions in nature, and not administrative or technical transactions in nature. 80. The decisive feature of a transaction concerning payment or transfer is the existence of a transaction consisting of the execution of an order for transfer of a sum of money, involving a change in the legal and financial situation as between the relevant parties. Although a complex supply of services can be broken down into separate services which then constitute ‘transactions concerning transfers’, to be within the exemption the transactions must form a distinct whole that has the functional effect (irrespective of cause) of making the legal and financial changes that are characteristic of the transfer of a sum of money. 81. Moreover, as the CJEU has said repeatedly, there is a distinction between a service which is indispensable for the performance of an exempt supply by another (which is insufficient for exemption) and a service which itself contains the essential elements of an exempt supply defined in art 135(1)(d) and is therefore an exempt supply. The mere fact of being an indispensable constituent element to completing an exempt transaction does not alter that position. 82. Since art 135(1)(d) does not prescribe or envisage any particular method for effecting the transaction, the transaction may be a transfer effected by the actual transfer of funds, or depending on the facts of the particular case, a transfer effected by accounting entries, as occurred in ATP. However, the mere physical or technical supply of software or a data-handling system to a bank that does not effect a transfer of funds with a change in the legal and financial position (for example, ownership), will not fall within the exemption … 86. The CJEU concluded, clearly and unambiguously, that actual execution is necessary to qualify as a transaction concerning transfer or payment, and the mere giving of an instruction is not sufficient in itself, even if the instruction or order is indispensable to the transaction taking effect, and even if the instruction triggers an entirely automatic process leading to payment: electronic messaging services in a payment chain, that merely transmit information or instructions but do not themselves perform any of the functions of transmitting funds to constitute a transfer, do not fall within the exemption. 87. Both the Advocate General and the CJEU in DPAS identified the obvious tension between the two lines of authority and the debate that had existed as to whether an instruction to another party to effect a transfer was sufficient. Having done so, both deliberately followed the Nordea/Bookit II line of reasoning, concluding that the services supplied by DPAS (involving instructions to transfer funds through the direct debit system) were administrative only and did not effect the transfer and the legal and financial changes which characterise a transfer of a sum of money. In DPAS issuing instructions to financial institutions to carry out a transfer was regarded as comparable to the card processing services in Bookit II and NEC. All were merely preparatory steps or steps prior to the transfer, and the importance of the financial consequences of such steps to the transaction as a whole, was not relevant. That conclusion as a matter of general principle (and not merely as application to the particular facts) is reinforced, as Ms McCarthy [counsel for HMRC] submitted, not only by the fact that the court was identically constituted in these three cases, but also by the statements in DPAS that AXA CJEU cannot be relied on any longer in relation to the payment/transfer point (see the Advocate General’s Opinion at paras 56–65 and paras 48–50 of the CJEU’s judgment). … 89. The critical factual distinction Mr Cordara [counsel for Target] sought to draw between a party who is a mere communications interface, and a party who, in the context of operating a continuing financial relationship through the provision of loan accounts, constructs and delivers binding instructions for money to be moved between accounts, is unsustainable in light of DPAS. In both cases, however legally significant the service is in a chain of binding messages, if the taxpayer’s role is limited to instructing another party to make the transfer and effect the change in payor/payee positions, that is not sufficient to fall within the exemption.”

“98. Applying the CJEU jurisprudence culminating in DPAS, and based on the findings of the FTT, all of the activities, taken together or individually, carried out by Target and viewed broadly, do not form a distinct whole that fulfils the essential functions of a financial transaction within the meaning of art 135(1)(d). First, Target does not provide loan origination services to Shawbrook: it does not assess credit worthiness, value potential security or otherwise decide whether to make a loan or process the making of any advances to borrowers. Instead, it provides an outsourced business process service that starts with the creation of a loan account once the loan is made, and includes the day-to-day operation of the loan account, and Shawbrook’s bank accounts, and dealing with the borrower to the point of final repayment. 99. Secondly, although Shawbrook has delegated part of its functions to Target, and Target has full authority to bind Shawbrook, operates bank accounts on behalf of Shawbrook and is responsible for matching payments to individual loan accounts and identifying missing payments, it does not itself debit or credit an account directly, or intervene by way of accounting entries on the accounts of an account holder. The functions delegated to Target are limited to passing the necessary information to BACS to enable it to give the relevant instructions to the borrower’s bank and Shawbrook’s bank so that the transfer of funds can take place; and do not include the necessary steps ordinarily undertaken in effecting the transfer of funds or payments themselves. Just as a customer of a bank (including Shawbrook) does not effect a financial transaction by instructing their bank to make transfers or payments, equally a person with authority to give instructions on behalf of the bank’s customer does not provide an exempt financial service. The transfers and payments are effected between the borrower’s bank and Shawbrook’s bank, and neither of these banks delegated any part of these functions to Target. 100. Thirdly and as noted, Target’s role is limited to giving instructions or orders that are executed by a different party. Target generates instructions or requests for payment by direct debit, in the form of a BACS file containing electronic payment instructions to banks operating the borrower bank accounts, which are then processed automatically by BACS. In other words, Target triggers the chain of steps leading to a transfer, but does not itself execute or effect the legal and financial changes which are characteristic of the transfer of money. The fact that Target itself uses the BACS payment systems rather than instructing a financial institution to do so is a distinction without a difference. Likewise, that Target performs a ‘legally significant service under authority within the chain of binding messages’ as Mr Cordara described it, which results in alterations to payor and payee accounts, is not sufficient to qualify for exemption, even though it may be a necessary step in order for the payment to be made. Were it so, DPAS and the cases preceding DPAS (including Nordea, Bookit II and NEC) would have been differently decided. 101. Fourthly, Target does not assume responsibility or liability for achieving a transfer or payment in the services it provides, as Mr Cordara submitted. The service performed by Target does not go beyond an exchange of information or request for payment to somebody else to make the transfer or payment. That third party, and not Target, would be responsible for the failure or cancellation of, for example, a direct debit mandate. Target’s role is a prior step and in this regard I can see no basis for distinguishing DPAS, NEC or Bookit II.”

“… that the exemption provided for by points (3) and (5) of art 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.”