JPMorgan Chase Bank NA v The Commissioners for HMRC [2025] UKUT 00188 (TCC)

[2025] UKUT 00188 (TCC)Case No UT/2024/000002
UPPER TRIBUNAL
(Tax and Chancery Chamber)
Venue Rolls Building, LondonHearing Heard on: 10-14 March 2025Date Judgment date: 16 June 2025
VAT – Intra-group provision of services by infrastructure providing entity within group – issue arising over whether supply or supplies taxable under s43(2A) and (2B) VATA – whether single supply of support functions or multiple supplies of trading infrastructure services specific to particular business areas – whether if more than one supply whether any exempt under Payment or Securities exemption (Schedule 9, Group 5 VATA Article 135(1)(d) and/or (f) Principal VAT Directive) – appeal dismissed
Before
JUDGE SWAMI RAGHAVANJUDGE PHYLLIS RAMSHAW
Between
JPMORGAN CHASE BANK N.A.AppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentAndrew Hitchmough KC and Laura Poots KC instructed by Baker McKenzie for AppellantKieron Beal KC, Andrew Macnab, Counsel, instructed by the General Counsel and Solicitor to His Majesty’s Revenue and Customs for RespondentsDECISION

Introduction

[1]JPMorgan Chase Bank NA (‘CBNA’) is a US-regulated bank which, as well as carrying out transactions with its own clients, provides infrastructure and support services to companies via various intra-group agreements throughout the JP Morgan global corporate group. This appeal concerns the VAT treatment of services supplied by CBNA to JP Morgan Securities plc (‘SPLC’), a UK incorporated and regulated entity, used by the group for the purposes of the Markets segment of JPMorgan’s global business (providing clients access to the global financial markets). CBNA and SPLC are members of the same VAT group, CBNA is the representative member of the group. Ordinarily such supplies would be disregarded but because CBNA bought in services from overseas to enable it to make the intra-group supplies the issue that arises in this appeal is over the extent to which the supplies are treated as taxable pursuant to s43(2A) and (2B) of the Value Added Tax Act 1994 in VAT periods 06/13 to 12/20.[2]In that regard, CBNA’s appeal (which is an appeal against the VAT assessments HMRC made on CBNA), raises three broad issues:(1) Did CBNA make a single supply of support function services, as HMRC argue, or separate supplies, as maintained by CBNA? CBNA’s primary case is that it made seven separate supplies of Business Delivery services (each a composite supply of trading infrastructure services) in respect of the seven different business areas within the Markets segment of SPLC. Alternatively, CBNA argues it made two separate supplies of Business Delivery services (the trading infrastructure services) on the one hand and Support Services (e.g. HR, tax, real estate) on the other. We refer to this as the “single vs multiple supplies” issue.(2) If there was a single supply, was it a taxable or exempt supply? We refer to this as the “classification issue”.(3) Was any supply, individually or collectively, an exempt supply under the financial services exemptions, in particular the securities exemption, under Article 135(f) of the Principal VAT Directive? We refer to this as the “exemption issue”. This exemption issue only arises if CBNA win on the single vs multiple supplies issue.[3]The FTT found in HMRC’s favour that CBNA made a single taxable supply of “support function” services and that that was a standard-rated supply (even if one or more elements of the supply were exempt). It went on to hold that if it was wrong on that, and there were multiple separate supplies in respect of the seven business areas, or a separate supply of Business Delivery Services, those separate supplies would not have been exempt.[4]It also considered it was not appropriate to dismiss the appeal on the basis of the “Identification Issue” (an argument advanced by HMRC that CBNA had not identified any specific exempt supplies and what consideration for those supplies was given). HMRC advanced this argument in the Respondents’ Notice and the parties addressed us on the issue.[5]With the permission of the FTT, CBNA appeals arguing the FTT made various errors of law. On the single vs. multiple supply issue it is argued principally that the FTT misapplied the relevant legal principles. On the exemption issue it is argued the FTT misinterpreted the relevant case-law on the scope of the securities exemption and also that the FTT’s conclusions were inconsistent with its own findings. On the classification issue, while CBNA agree that (if contrary to its case) it is found to make a single supply of services that the FTT were correct to have concluded that constituted a taxable standard rated supply, it argues the FTT’s reasoning for so concluding was wrong.

Legal principles relevant to single vs multiple supplies issue:

[6]For VAT purposes every supply must normally be regarded as distinct and independent. It is well-established in the relevant jurisprudence that supplies can nevertheless exist which, although comprised of different elements, amount to a single composite supply. There is no dispute between the parties on the FTT’s summary of the case-law and the relevant legal principles those set forth. It is convenient, in order to understand the terms and structure of the FTT’s subsequent reasoning, to set out the legal principles, which are well-rehearsed in any number of cases, by reference to the authorities the FTT referred to.[7]In that regard, the FTT referred principally to the summaries set out in the FTT decision of Spectrum Community Health CIC v HMRC [2022] UKFTT 237 (TCC) and in the Upper Tribunal’s decision in R (oao Gloucestershire Hospitals NHS Foundation Trust) v HMRC [2023] UKUT 28 (TCC) (‘Gloucestershire Hospitals’).[8]As pointed out in those cases the CJEU caselaw has established there are two types of single composite supply.(1) The first is 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) (Card Protection Plan Ltd v Customs and Excise Comrs (Case C-349/96) (‘CPP’) at [30]).(2) The second 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 (see Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) (‘Levob’) at [22]).[9]This appeal is principally concerned with Levob supplies(although it is useful to mention CPP because as will be seen one of CBNA’s arguments refers to the fact that some of the contractual material sought to incorporate the application of the CPP test).[10]In Gloucestershire Hospitals the UT found it helpful to break the Levob formulation into the following elements. The FTT adopted a similar approach (at [116]):(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?[11]The UT in Gloucestershire Hospitals went on to address those questions with the CJEU’s analysis in Frenetikexito – Unipessoal Lda v Autoridale Tributaria e Aduaneria (Case C-581/19) (‘Frenetikexito’) in mind. There, the CJEU had set out the criteria to be considered when a Levob type supply was in issue and where the Advocate General’s opinion in that case was specifically approved. Both were conveniently summarised by the FTT (Judge Sinfield) in Spectrum Community Health CIC v HMRC (‘Spectrum FTT') at [51] to [53] as follows: “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? “[12]As to the CJEU’s decision,

Judge Sinfield noted:

“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.” “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.”
[13]As regards the relevance of any contractual agreement to whether a given transaction amounts to single supply or multiple supplies, there is again no dispute between the parties. The analysis of the transaction depends on the economic realities. However, the contract is the starting point for that and the court only goes behind that if the contract does not reflect the true agreement between the parties. (The FTT referred to statements of Whipple LJ in Mainpay Ltd v HMRC [2023] STC 30, Lord Neuberger in HMRC v Airtours Holidays Transport Ltd [2016] STC 1509 and Arden LJ as she then was in ING Intermediate Holdings Ltd v HMRC [2018] STC 339 to that effect.)

The FTT Decision - background facts

[14]Over the course of the nine-day hearing before it, the FTT heard evidence from seven witnesses on behalf of CBNA, and received a significant amount of documentary evidence. The background facts as found by the FTT are undisputed. In the following section we focus on the facts necessary to understand the grounds CBNA raise in this appeal.

Group structure

[15]CBNA and SPLC are part of the JP Morgan global corporate group, the parent company of which is JP Morgan Chase & Co (“JPMC”) headquartered in the US. CBNA is the main infrastructure providing entity within the JP Morgan Group providing services to other group entities, including SPLC, enabling them to trade in a globally consistent manner ([17]). SPLC is the client-facing entity for markets transactions in the UK. It is the contractual counterparty in client transactions and employs front office staff (traders and sales people).[16]JPMC’s global business comprises a hierarchy comprising (from the highest level to the lowest): Divisions, Lines of Business, Business Segments and Business Areas. Relevant to this appeal is the Wholesale division. Sitting within that division is the Corporate and Investment Bank Line of Business, and within that the Markets segment (this is a single global business carried on by different legal entities and different locations). The Markets segment is in turn subdivided into seven business areas reflecting the types of transactions undertaken namely: 1) Equities, 2) Rates and Rates Exotics, 3) Currencies and Emerging Markets, 4) Fixed Income Financing, 5) Commodities, 6) Credit Trading and Syndicate, 7) the Securitized Products Group.[17]CBNA’s primary case, as mentioned, is that it provides multiple services consisting of distinct Business Delivery Services to the above seven different business areas (as distinct from Support Services which we come on to describe). The FTT adopted the terms that CBNA used, namely, ‘Business Delivery Services’ and ‘Support Services’ for ease.[18]The Business Delivery Services were provided by four teams: Quantitative Risk (“QR”) (the development and oversight of complex statistical models used in pricing, valuation and transaction execution), Technology (provision of systems needed by the front office and used by Operations to enable transactions to take place and fulfil commitments under trades), Operations (all operational processes involved in processing transactions including clearing and settlement of trades) and Market Risk (identification, monitoring and control of risk of financial loss from market variables on trades between clients and SPLC).[19]The FTT went on to cover findings on: the inter-relatedness of the functions ([36]) and bespoke nature of what each business area required, for example depending on the different products traded (which meant it was not possible to use the same models operational processes and technology) ([38]- [51]), the specialised personnel required for each area ([52- 56) and the differences between the areas in terms of bespoke Commissioning and Governance ([57] – [65]).[20]CBNA also provided Support Services. As well as corporate functions this included functions such as HR, payroll, and tax. There were also control functions such as the Model Risk Governance Group and the Valuation Control Group. These provided governance and oversight but were not directly involved in effecting any trade. It also included services by teams responsible for maintaining financial records, compliance and external reporting.[21]The Support Services were delivered by different teams within CBNA reflecting divisions within JP Morgan for instance between HR, Operations and Technology. The FTT also explained how there were differences between Support Services and Business Delivery Services in terms of how these were delivered and procured ([82] – [85])).

Contractual materials

[22]In broad outline the materials comprised an umbrella agreement, the Global Master Services Agreement (“GMSA”) containing generic provisions for the inter The FTT referred to ‘inter’ and intra’ interchangeably when referring to supplies made between entities in the JP Morgan Group. There is no difference in meaning intended and nothing turns on this. -company provision of services from CBNA to its Affiliates. That in turn referenced further detail in an Expense Allocation Policy (“EAP”). The particular services a given Affiliate received were provided pursuant to an Addendum to the GMSA which the relevant affiliate entered into.[23]The FTT described the GMSA at [89] as “the legal framework, terms and conditions under which services were provided on an inter-company basis between CBNA and its Affiliates, including SPLC…”.[24]The GMSA, which came into effect on 1 January 2006 (“the 2006 GMSA”), was then revised and amended in 2010 and 2015 although nothing turns on those changes for the purposes of this appeal. As mentioned below, a further GMSA was entered into on 30 September 2019 (“the 2019 GMSA”). Although that was current during a small part of the relevant period the significance of the changes it made as regard the prior periods are a matter of dispute.[25]The interoffice memorandum attaching the 2006 GMSA explained how the GMSA “was to be used to substantiate expense allocations and payments among Affiliates of JPMC”, that the agreements referenced other documents (the EAP and Product and Pricing Guide (a granular list of over 5000 cost/expenses products)) accessible on the internal website, and how each affiliate was to execute an Addendum to indicate its agreement to be bound.

The 2006 GMSA

[26]The recitals to the 2006 GMSA explained how, in providing services to one another, affiliates were subject to US banking and tax and transfer pricing rules (these were matters which the FTT had recorded had driven the need to ensure inter-company payments were based on expense allocations ([86])). The 2006 GMSA recitals also explained that JPMC had adopted an EAP:
“…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”
[27]It continued:
“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;”
[28]Clause 1 of the 2006 GMSA provided definitions including at c) that:
“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.”
[29]Clause 2, headed “Services; Compensation” provided as follows:
“(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.) …”
[30]Clause 3 which is headed “Accounting, Billing Procedure; Taxes” provided:
“(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.”

The Addendum

[31]The draft Addendum accompanying the 2006 GMSA provided as follows:
“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. [The FTT explained that there were no schedules relevant to this.] 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.”

The Expense Allocation Policy

[32]The purpose of the EAP as indicated by the recital to the GMSA was to set 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.”
[33]The overview section explained:
“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…”
[34]That objective was referenced again in Appendix B which dealt with “Indirect Tax Implications”, and explained:
“The process for such inter-entity charges is therefore geared towards identifying cost components of service teams and defining them at a granular Expense Product level. The Product and Price guide unit is therefore more accurately defined as an Expense Product rather than as a service. This is reflected in the Global Master Services Agreement which provides the contractual framework for these inter company allocations and financial charges.”
[35]The policy then explained the basis for aggregating elements up to a single supply for which a charge was made and that the service would have a single treatment for indirect tax purposes: “In order to correctly identify the service provided and the total consideration for that service, Expense Products must be grouped by the functional group (in the management accounting hierarchy) which receives a service in the particular legal entity. Certain functional groups in a provider legal entity operate in a stand alone or an independent manner and will provide distinct services not part of a single Service. Other functional groups, particularly business aligned operational support groups, rely on corporate functions and the firm’s global infrastructure to deliver a service. 6. Thus: 6.1. In a single legal entity, the recipients of expense allocations that are financial allocations (ie cash-settled) should be identified. These recipient organizations at the lowest level should be grouped in accordance with the management accounting hierarchy at an appropriate level for indirect tax purposes. This level will be sufficiently high to capture all organizations whose input is required to provide a service and this will allow the service to be categorized for indirect tax purposes. 6.2. Providing organizations (or groupings of organizations in the management accounting hierarchy) which provide standalone and distinct services will be identified and all financial allocations from such providers will be treated as distinct services. These allocations will not be grouped with allocations from other providers for the purpose either of invoicing or of assessing liability for VAT and analogous charges. 6.3. Additionally, there will need to be identified providing organizations which can be grouped according to their functions as providers of either:a. the essential element of a service (such as business-aligned support groups responsible for the operational support of a front office); orb. ancillary elements to a service. 6.4. In a legal entity to legal entity relationship, allocations from groups falling into 3 (a) and (b) above which are identifiable to a single group in 1 above will be grouped together and identified as providing a single service for invoicing and indirect tax purposes.[36]The policy proceeded to give examples (which it is convenient to discuss under the relevant ground of appeal below).

Specimen Invoice

[37]The Appellant points out that the FTT did not refer to the specimen invoices referred to in the GMSAs in its decision, although they were before it. We were referred to the one set out in Appendix A of the 2010 iteration of the GMSA which showed the following details:(1) The provider (CBNA) and recipient (First Chicago Leasing Corporation). The total charge for services provided (122,28) with the service description as “Support Services”.(2) The Receiving Business Areas (again with a one line entry “Support Services” for the amount of 122,28)(3) A more detailed breakdown of the charges” by reference to “Customer Business Area” although in this case there is only a one line entry of 122,28 (“Americas Management Allocation”).

The Inter-entity tax invoicing tool

[38]The FTT was also shown actual invoices. By way of context for those it is necessary to explain the “Inter-entity invoicing tool” (“IETI”) that was used as part of the invoicing process as part of JPMorgan’s efforts to identify and classify intra-group services for VAT purposes under the 2006 GMSA. In brief this was described as a “bolt on” to the invoicing process in the form of a piece of software that would enable the VAT team to be able to quantify the VAT treatment of the items covered by each invoice. There were 22 descriptions such as “Clearing and Settlement of trades” “M&A Corporate Finance intermediary services” and “Technology or business support services”.[39]The more detailed background to this tool was as follows. The FTT heard that the SAPCO system JPMorgan had used for invoicing lacked specificity, merely recording generic inter-company fees. To address this, JPMorgan developed the IETI “bolt-on” to SAPCO to allow the VAT Team to determine the VAT treatment of services by aggregating cost allocations into recognisable functions ([135]–[136]). IETI applied a “principal-ancillary” approach to amalgamate services and assign them one of 22 predefined service descriptions, which were later updated in line with the 2019 GMSA ([137]).[40]Invoices generated through IETI included layered detail: a summary page listing service descriptions, followed by itemised breakdowns by receiving business area, and finally, extensive documentation of the specific “Expense Products” and their values ([138]–[139]). It was explained that the cost allocation process aimed to ensure each business area paid only for the services it used, stating it was designed “to ensure that all costs are allocated (to the extent practicable) to the relevant business areas that benefit from the services” ([140]). However, IETI did not determine VAT liability; it was a tool to quantify consideration, with classification handled semi-manually by the VAT Team using the service descriptions and guided by Mr Bradley ([141]–[142]).[41]The classification process aimed to distinguish between exempt and taxable supplies, with exempt services typically linked to Technology, Operations, and Market Risk. The VAT Team used a structured approach, as outlined in a 2017 paper to HMRC, to apply different service descriptions depending on the nature of the supply ([143]–[145]). CBNA’s witness, Mr Bradley (a CBNA employee who headed up the VAT EMEA team) noted the challenge in identifying “any specific supply with exempt characteristics that represents a clear exempt supply,” acknowledging that IETI sometimes misclassified services, particularly by wrongly categorising some costs as taxable Support Services ([147]–[148]). He admitted the invoicing structure was “opaque” and lacked documentation explicitly identifying exempt supplies.[42]The FTT also heard that IETI’s “bottom-up” methodology—aggregating components into a service—could obscure the nature of the overall supply. Mr Bradley conceded this approach might misrepresent the integrated service, stating, “the integrated service as a whole is often more than, or different from, the sum of its component parts” ([149]).

Actual invoices

[43]As regards actual invoices, the FTT explained ([138] and [139]):138. The invoices produced show two different levels of detail. The first page shows the relevant service by description, using the appropriate of the above 22 service descriptions (or so many of them as are relevant). On subsequent pages the same service descriptions are itemised and are broken down and grouped by reference to the “receiving business area”.139. Each invoice is accompanied by an even more detailed breakdown, often running into thousands of pages, which is organised by the recipient business area, and then by the service descriptions. The additional detail is the specific Expense Products which have been amalgamated to make up the identified service, together with itemised amounts of those Expense Products.[44]We were taken to an example of one of the actual invoices dated September 2013 between CBNA and JP Morgan Securities Ltd – that listed amounts next to 17 of the 22 categories totalling $30,173,917.26. On the remaining page there were details of each receiving business area with the relevant element(s) and figures(s) in respect of the 22 categories. These did not specifically identify the seven business areas as described before us.

The 2019 GMSA

[45]As regards the GMSA entered into in 2019, the FTT found that JPMorgan had been in ongoing discussions with HMRC about outsourcing since 2014, which expanded in 2017 to include issues central to the present appeal ([125]). It was acknowledged during this process that the 2006 GMSA did not adequately describe the intra-group services being supplied. Consequently, JPMorgan’s VAT Team, with input from other departments, worked to clarify these services and their VAT treatment. Simultaneously, JPMorgan was reviewing its outsourcing governance in response to evolving regulatory expectations, leading to a rapid decision-making process internally referred to as a “war room” in mid-2018 ([125]).[46]The FTT found that the outcome of this internal review was a decision to streamline the GMSA to avoid “the requirement (in a number of non-UK jurisdictions) of having a schedule for each outsourced activity and, in response to the VAT dispute which led to this appeal, the nature of the services should be clarified and better defined”. The VAT Team saw this as an opportunity to address the deficiencies in the 2006 GMSA by including “an appropriate” description of the services and “address the gap in the 2006 GMSA”. Mr Bradley led the drafting of this description, which underwent a firm-wide approval process, including sign-off by the CFOs of each business line and JPMC. However, VAT was only one of several factors influencing the 2019 restatement, and the VAT Team alone did not initiate the “war room” process ([126]).[47]Recital H to the 2019 GMSA explained:
“WHEREAS, certain Services are Business Delivery and Support Services (identified and described in Appendix C), each of which is a single economic supply provided by a single Affiliate, the compensation for which may be determined by reference to an amalgamation of multiple underlying Expense Products.”
[48]Clause 1 (l) to the 2019 GMSA defined “Services” “shall mean (i) the Business Delivery Services and Support Services identified in Appendix C that to the extent applicable, may be further defined by the detailed activities in an agreed upon taxonomy of component activities and captured in an online tool(s) or (ii) any other service set forth in any other documentation or tool(s) that details the activities being performed …”.[49]The introduction to Appendix C then stated:
“The Services identified in this Appendix shall consist of: (1) those essential for and specific to the 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.”
[50]The Appendix went on to describe in more detail the content of, respectively, Business Delivery Services and Support Services. Business Delivery Services were specified to consist of “Transaction Execution, Fund Administrative Management and Sales Relationship Management”. A more detailed description was then given of these services in respect of different businesses. For instance, the list for Corporate Investment Bank, the Markets and Capital Markets businesses included i) facilitation of trading through technology platforms, ii) transaction recording and settlement iii) collateral processing iv) initial client set-up / pre-trade checks v) otherwise enabling the processing management and execution of trades. The specification under “Support Services” set out a non-exhaustive list of services e.g. business technology, audit, human resources, legal and compliance services, real estate and security services, which were each accompanied by more detailed descriptions.[51]Appendix D contained specimen invoices which aligned with the Business Delivery and Support Services as described. The FTT explained these services were then on subsequent pages attributed to the individual business areas to which they related ([133]).[52]The FTT found that the amended and restated GMSA, which came into effect on 30 September 2019, included for the first time a contractual description of the inter-group services. Mr Bradley confirmed however that there was no substantive change in the nature, number, or underlying business of the services provided as a result of the restatement ([127]).

The FTT’s reasoning on the single vs multiple supply issue

[53]As already mentioned, there was no dispute around FTT’s identification of legal principles and its explanation, by reference to the case-law, discussed above and that the case concerned Levob-type supplies. It noted the parties’ agreement that the contractual arrangements should be the starting point going on to mention in relation to the 2006, 2010 and 2015 GMSAs (“the earlier GMSAs”) that:(1) The definitions of “Provider”, “Recipient” and “Services” provided that services were provided by one legal entity to another ([272]).(2) The “Services” in the earlier GMSAs were “undifferentiated and consist of those requested and provided in accordance with the GMSA and relevant addenda” and that it was common ground that “no distinction [was] drawn between “Support Services” and “Business Delivery Services” ([273]).(3) “The relevant addendum, at clause 1 [set out [31] above] provides that the services “will be identified and characterized on invoices”, i.e. the scope of the services is defined by the invoices. It is also clear from, clause 2(b) and 3(b) of the 2006 GMSA and clause 3(b) of the 2010 and 2015 GMSAs that, in respect of all expense products identified in the PPG payment obligations and consideration (referred to as compensation in the GMSAs) are also defined by invoicing” ([274]).(4) All versions of the GMSA referred to and incorporated the EAP ([275]).(5) Para 6.2 of Appendix B to the EAP made it clear that “any distinct services are to be identified and invoiced separately” ([276]).(6) Mr Bradley had confirmed in evidence that CBNA had not prepared separate invoices for Business Delivery Services ([277]).[54]As regards the 2019 GMSA the FTT noted: (1) This “restatement of the GMSA, unlike previous iterations, recognises the distinction that CBNA contends exists between Business Delivery and Support Services” but that “this iteration of the GMSA was brought into effect during the period when CBNA and HMRC were in discussions prior to the issue of the Liability Decision in February 2020 … and it is not disputed that this was one of the reasons behind the restatement of the GMSA in 2019”. The FTT noted that:
“In any event there was no alteration in the nature or number of such services supplied or any change in the underlying business” ([280]). (2) Under Appendix C there was a contrast between the “essential”
Business Delivery Services and the Support Services being a residual category. (3) There were three category groupings of Business Delivery (Transaction Execution Services etc.) but that it was acknowledged there was no formal document setting out that the four heads (Technology , Operations, QR and MR) were intended to make up the Business Delivery Services covered by Appendix C.[55]The FTT then addressed the question of whether the contracts reflected economic reality and CBNA’s argument the contractual documentation had “issues and [could] not provide an exhaustive and definitive analysis for VAT purposes)”. It recorded CBNA’s various points regarding why, in essence, the contracts were not definitive (for instance that they were intra-group, and produced with transfer pricing and regulatory considerations in mind). The FTT agreed however with HMRC explaining (at [288]): “While it is true that there is a lack of detail in the contracts, I agree with Mr Beal [Mr Beal KC appeared for HMRC before the FTT and before us] that is not, in itself, a reason to conclude that they do not reflect economic reality. The contractual arrangements concerned are those of a large multinational bank, with extensive resources available for the task, in circumstances where the Expense Allocation Policy expressly envisages that the invoicing arrangements deployed under the contractual arrangements will be used for addressing indirect tax consequences of intra-group recharging. There was nothing to prevent the adoption of a much more detailed framework agreement had it been considered appropriate to do. Therefore, on balance, I agree with Mr Beal that the contracts in this case do reflect the true agreement between CBNA and SPLC and, as such, it is not necessary to “go behind” them.[56]The FTT concluded “taking the contractual documents as a whole” that it was clear CBNA made “a single supply to SPLC of everything that it (SPLC) needs to enable it to achieve its aim of regulatory compliant trading in globalised markets”.[57]Given the number of detailed specific challenges made to the FTT’s reasoning on the single vs. multiple supplies issue it is convenient to set that reasoning out in full:
“289….. Under the 2006, 2010 and 2015 CMSAs, CBNA provided undifferentiated Support Services. Although the 2019 GMSA did refer, for the first time, to Business Delivery Services and Support Services this was in the context of ongoing discussions with HMRC and did not result in change in the nature or number of such services supplied or alteration to the underlying business. As such, there was no change to the services provided before and after 30 September 2019 when the 2019 GMSA came into effect. 290. In addition there is nothing in the contractual documents to suggest that the services are not closely linked or that the focus should be on internal divisions within the business as the contractual analysis reflects the VAT classification of examining which legal entity has made what supplies to which legal entity for consideration. As a matter of economic reality it is not possible for SPLC to trade using the Business Delivery Service and not the Support Services (legal, accountancy, compliance, email etc) and vice versa. 291. The different elements of the supply provided by CBNA to SPLC are “closely linked” (see Gloucestershire Hospitals at [116(i)]). While the “Business Delivery Services” are necessary for SPLC to carry out trades and all operations in the business areas selected, they are not sufficient on their own. The “Supply Services” include essential functions which are necessary for SPLC to be able to undertake its business. Mr Bradley, Mr Richardson, Mr Morawitz and Mr Reig Mascarell [witnesses who appeared on behalf of CBNA ] all accepted that generic services, such as legal and payroll, which CBNA described as Support Services are essential for SPLC to function (see paragraph 67, above). 292. Further examples of that close link between the elements of the supply can be seen, as described above (in paragraphs 70-81), in the integral part played by the MRGR, the VCG, Product Control, Regulatory & Compliance and CIB Finance & Business Management functions in the business of JPMC to the extent that the different elements form a “single, indivisible economic supply” (see Gloucestershire Hospitals at [116(ii)]). The economic purpose of the services provided by CBNA under the GMSA is to allow SPLC (and other JPMC affiliates in other jurisdictions) to carry on business in a consistent fashion in compliance with the various regulations in the globalised environment in which they operate. 293. Any attempt to split these different elements into separate supplies would, in my judgment, be artificial (see Gloucestershire Hospitals at [116(iii)]). In evidence, Mr Bradley acknowledged that, for JPMC, there is no choice to be made between making money and complying with regulatory obligations (see paragraph 16, above). He also accepted, as did Mr Bradley, Mr Richardson, Mr Morawitz and Mr Reig Mascarell that CBNA needs what it describes as Support Services to function (see paragraph 67, above). Quite clearly, the different elements of that supply are not available separately (see Gloucestershire Hospitals at [117(2)]). It is not, as Mr Bradley accepted in evidence, possible for SPLC (or any other affiliate) or any of SPLC’s trading areas to decline any service provided by CBNA as it would undermine the aim of standardisation across the JPMorgan group if it did (see paragraph 18, above). 294. Also, viewed objectively, the “typical consumer” in SPLC’s position would reasonably regard the different elements as a single supply (see Gloucestershire Hospitals at [116(iv)]). This is reflected in the recognition by CBNA’s witnesses that not only the “Business Delivery Services” but also the “Supply Services” are essential for SPLC to carry on its business (see paragraph 67, above). 295. As such, it must follow that as the different elements of the supply are indivisible and indispensable in order to achieve the aim of the supply (Gloucestershire Hospitals at [117(1) & (3)]), CBNA makes a single supply to SPLC of what Mr Beal described as “Support Function Services” which encompasses and includes both Support Services and Business Delivery Services.”
[58]Thus, contrary to CBNA’s position set out above, the FTT concluded that CBNA made a single composite supply of ‘Support Function Services’ to SPLC.

Grounds of appeal

[59]CBNA’s grounds of appeal are that the FTT made various errors in concluding CBNA made a single composite supply. In particular it is argued the FTT:(1) Misconstrued key aspects of the contracts in issue before it.(2) Ignored other aspects of those contracts that were material.(3) In concluding that because the contracts reflected economic reality, it was not necessary to ‘go behind’ them, failed to (i) recognise the limitations of those contracts and (ii) consider other evidence before it (recorded in its findings of fact) which was inconsistent with its conclusion.(4) Misapplied the key factors of indivisibility and indispensability, equating those factors with the existence of ‘close links’ and ‘necessity’.(5) Misapplied the concept of separate availability.(6) Placed undue (and in any event incorrect) reliance on invoicing.[60]We deal with each of these points in turn. It can be seen that Grounds 1-3 encompass a challenge that the FTT’s analysis of the contractual starting point was wrong and the need for the FTT to have examined the wider circumstances whereas Grounds 4-6 concern misapplications of the tests mentioned as respectively decisive and supportive in Frenetikexito.[61]HMRC dispute that the FTT made any of these errors. They emphasise that the contract stipulated for there to be a separate and distinct service, and that under that there needed to be a separate invoice. However there was no evidence of such separate invoice. Therefore the FTT was right to find no separate supplies of business delivery services but a single support function service and there was no error in its analysis.[62]Mr Hitchmough KC, who alongside Ms Poots KC appeared for CBNA, helpfully clarified CBNA did not take issue with the way in which the FTT had set out the contractual material at [86] to [134]. The issue was with the FTT’s incorrect analysis of that material and thus its incorrect views of the correct contractual starting point. In particular, CBNA takes issue with the FTT’s conclusion that “any distinct services [were] to be identified and invoiced separately”. It is submitted that the FTT had, in reaching that conclusion misconstrued clause 1 of the Addendum to the 2010 GMSA, and clauses 2b) and 3b) of the earlier GMSAs. CBNA argue:(1) Although clause 1 of the Addendum referred to services being “identified and characterized on invoices” the Addendum (in contrast to the EAP) did not deal with how to identify the scope of such services.(2) The FTT misconstrued Clause 2b) failing to recognise that the invoice referred to there would have been produced using the principles stipulated in the EAP and that the clause expressly recognised that the detail provided on an invoice may encompass components which were not complete services for the purposes of VAT.(3) The FTT similarly misconstrued the effect of Clause 3b) (see [30] above) which envisaged that a single invoice might cover multiple services. That provided that the provider was to prepare and invoice “substantially in the form of Appendix A attached hereto”. The clause referred to the invoice describing “the services performed” (i.e. plural).[63]The FTT also, it is further submitted, misconstrued material provisions of the EAP, Paragraph 6.2 Appendix B of which set out that the Provider of:
“standalone and distinct services will be identified and all financial allocations from such providers will be treated as distinct services. These allocations will not be grouped with allocations from other providers for the purpose of either invoicing or of assessing liability for VAT and analogous charges.”
[64]CBNA refers to the fact the FTT concluded from this (at FTT [276]) “It is therefore clear that any distinct services are to be identified and invoiced separately”. All that required however was identification of distinct services and that could be for example by itemisation. The fact that separate invoices were not required was made clear by example 1 at paragraph 7 of the EAP and was consistent with specimen and actual invoices. That example was explained in the EAP as follows: “7.1 JPMorgan Securities Ltd might receive management accounting and financial allocations from JPMorgan Chase Bank NA in the US. The recipient cost centres might include various organizations within the Investment Bank front office. These cost centres would fall within a grouping of EMEA Equities whose role is broadly to provide various equities products to clients and manage those products. This Global EMEA grouping would fall within 1 above. 7.2 Allocations to this grouping might be made by cost centres from groupings such as End User Technology, Human Resources, Office of the General Counsel or Global Finance. These all have specific roles which involve providing services that are essentially distinct and allocations from each grouping would be treated as a separate service with its own consideration (the total sum of financial charges for products in that grouping). These will be separately identified on an invoice. These allocations would fall within examples from 2 above.[65]Mr Hitchmough also emphasised in oral submissions the reference to “identified on an invoice”. The Appellant also refers to the fact the specimen invoice at Appendix A of 2010 iteration of earlier GMSAs showed a) on first page the provider and recipient legal entities and a total charge for the services provided b) on second page a breakdown of that total with more detail by reference to “Receiving Business Area” c) on third page a more detailed breakdown by reference to Customer Business Area.”

Discussion

[66]From the above, and as was clear from the way both parties put their case in oral submissions, a key point of contention between them was as to whether the contractual material required separate supplies to be put on separate invoices (as HMRC argued) or whether separate supplies could be itemised on the same invoice (as CBNA argued).[67]In this regard CBNA highlights that the FTT has stated at [276] that a separate invoice is required for services that are distinct for VAT purposes. It is worth seeing that statement in the context of the full paragraph however:
“276. Under paragraph 6.2 of Appendix B to the Expense Allocation Policy (see paragraph 110, above), the Provider of “standalone and distinct services will be identified and all financial allocations from such providers will be treated as distinct services. These allocations will not be grouped with allocations from other providers for the purpose either of invoicing or of assessing liability for VAT and analogous charges”
. It is therefore clear that any distinct services are to be identified and invoiced separately.”[68]In our view, given the context, the FTT was not ruling here that separate elements within Business Delivery or Support Service supplies from CBNA could only be separate and distinct supplies if they were on separate invoices. Rather, what the FTT was referring to was the treatment of any services that were not categorised as Business Delivery or Support Services (having earlier noted at [273] that the “Services” were undifferentiated). This interpretation is further reinforced by the FTT’s earlier reference to the definition of “Provider” (at [272]) as concerning the legal entity. What the FTT was saying was that the services of a similar function /type but from “other providers” (i.e. other legal entities) could not be grouped together but needed to be invoiced separately. We therefore reject the proposition that the FTT considered that things that were Business Delivery or Support Services supplies could only be separate supplies if they were on separate invoices.[69]As for the other specific points where it is said the FTT misconstrued the materials we do not consider that any amount to an error of law:(1) The Addendum: We agree with Mr Hitchmough’s point in reply, that clause 1 of the Addendum to the 2010 agreement (which provided that “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”) does not of itself mean that separate services needed separate invoices. However, the reference to “identified and characterized on invoices” is consistent both with it being envisaged that there would be separate supplies on separate invoices, and with separate supplies being itemised on one invoice. We note again that the FTT did not actually rule that separate invoices were required. What it said (at [274]) was that “the scope of the services is defined by the invoices” and the “payment obligations and consideration…are also defined by invoicing.”(2) Clause 2b) GMSA:As regards the argument concerning the caveats in clause 2b) we consider that irrelevant. The FTT never suggested there to be any issue over whether the individual cost components constituted a complete service. Accordingly the fact the cost components were not complete services does not help on the issue of whether there was a single supply of support functions or distinct supplies of Business Delivery or Support Services or seven business area-related supplies.(3) Clause 3b) GMSA:Firstly, the FTT did not interpret Clause 3b) as having the effect advanced by the Appellant (that multiple services could be separately identified on one invoice). It did not rule that out as a possibility. Secondly, the reliance on the reference to “services” is misconceived. The reference was actually to a defined term “Services” which referred in turn to GMSA clause 1c) as meaning “the activity performed by an affiliate for another…”. In other words “Services” did not necessarily connote multiple services (nor it is true, as mentioned, that the FTT in any case ruled that possibility out).(4) Clause 6.2 b) Appendix B GMSA: Similarly, with Clause 6.2b), the FTT’s point was that distinct services from other providers would be invoiced separately. It was not ruling out the possibility that separate services might be itemised on one invoice.[70]The above conclusions are sufficient to hold that this Ground is not made out and should be dismissed. It is, in any case, not clear to us that the FTT in fact relied on the lack of any separate invoicing of the Business Delivery or Support Services for its conclusion that there was a single supply of support functions. In our view the primary basis for the FTT’s starting point as regards the contractual material was that the GMSA did not differentiate services.[71]Moreover, even if it were correct that the contract, through the EAP, placed an invoicing requirement in respect of specification of distinct services (whether that was for such services to be invoiced separately (as HMRC argue) or itemised separately (as CBNA argue)) that could not be determinative of the question of whether, as matter of law, there were single or multiple supplies. The relevance of the contractual analysis is that it reveals the content of the obligation the parties had agreed with each other (and that after all is why the contractual obligation is recognised to be the correct starting point because the parties’ true bargain will normally coincide with the economic reality of the transaction). Here, it is clear what the contractual arrangements were seeking to achieve, in the description of what was being provided, was to arrive at a result which approximated as closely as possible to what it was thought the correct VAT outcome was. However it cannot be right that the views of the parties of whether that obligation made up a distinct service, when analysed under VAT law, could not be determinative, simply by being encoded through a contractual mechanism. In other words the fact the parties, following the EAP, had come to the view the relevant service was separate and distinct, would not be conclusive of the fact that it was. It would be an odd result if the characterisation of supplies could be sidestepped by effectively making the parties’ VAT analysis determinative. Thus, it would in principle still be open to find, following analysis of the nature of the obligation of what was being supplied, that there was one service despite it being separated onto different invoices, or conversely to find multiple supplies even if these only appeared on one invoice.[72]Ground 1 therefore fails.[73]The focus of this ground are the provisions of the 2019 GMSA. It is argued the FTT erred in ignoring those provisions on the grounds that there had been no change to the services provided before and after the coming into effect date of the 2019 GMSA (at ([289]) and on the basis that such agreement was “brought into effect during the period when CBNA and HMRC were in discussions” ([280] – [281]).[74]It should be noted however that no challenge is brought by the Appellant to the FTT’s finding that there was no change to the services. That was based on the evidence of the Appellant’s witness who had confirmed “there was no alternation in the nature or number of the [inter-group] services supplied or change in the underlying business as a result of the 2019 restatement of the GMSA”. While the Appellant argues the 2019 GMSA changes should have caused the FTT to reconsider its analysis of the earlier GMSAs, we agree with Mr Beal that this puts matters the wrong way round. The evidence (which is accepted) that nothing had changed meant that the starting point was that the analysis of the earlier periods applied just as much to later periods. It is also a mischaracterisation to say that the FTT ignored the provisions of the 2019 GMSA. It was simply rejecting the determinacy of the contractual description of the different services referred to in the 2019 GMSA (which changes it had set out at length earlier in its decision). The FTT’s essential point was that the true nature of the agreement (which it concluded involved providing undifferentiated services of support functions) had not changed despite that change in description of the services. That did not amount to ignoring the provisions, but a view that the provisions did not have the effect for the purposes of a VAT characterisation of the services that the parties thought it did. The FTT was not thus, as the Appellants argue, going “behind the contract” but simply taking a view, as it was entitled to, that the nature and scope of the services described in the contract continued to amount to an undifferentiated supply. It was also not irrelevant in this regard for the FTT to note the context in which the 2019 GMSA arose (the dispute with HMRC). That context was relevant to reconciling why, when the substance of what was being provided had not changed, the contractual description of it had.[75]The Appellant also argues that to the extent the FTT found as fact that the 2019 GMSA was conceived with the current litigation in mind that was an Edwards v Bairstow error of law It argues such a finding went against various of the FTT’s other findings (that the VAT team would not have had “the clout” to require a review of the GMSA, that CBNA and SPLC had been identifying separate and exempt supplies, and Mr Bradley’s evidence that the VAT team viewed the 2019 GMSA as “an opportunity to include an appropriate description of the services and address the gap in the 2006 GMSA” ).[76]We disagree there was any such error. As explained below, none of the findings relied on mean it was not open to the FTT to make the impugned finding (to the extent it did).[77]At [280] the FTT concluded in respect of the 2019 GMSA “However this iteration …was brought into effect during the period when CBNA and HMRC were in discussions… and it is not disputed that this was one of the reasons behind the restatement of the GMSA…”. The FTT also found (at [126]) that:
“Although VAT was one of the factors involved in the 2019 restatement it was not the sole factor”
. The FTT had earlier explained at [125] how in 2017, discussions with HMRC which had started regarding outsourcing in 2014,”had expanded to consider matters which led directly to the present appeal” and “During that process it was recognised that the nature of the intra-group services being supplied had not been adequately explained by the 2006 GMSA”. The VAT team considered how best to explain those services and their VAT treatment to HMRC. Also JPMorgan was undertaking a review of its approach to outsourcing and a process known as the “war room” took place, the end of that was that the GMSA should be streamlined and “in response to the VAT dispute which led to the appeal” involved a conclusion that “the nature of the services should be clarified and better defined”. Thus the lack of clout of the VAT team being able to initiate the war room process did not mean the outcome of that process was incapable of taking account the VAT discussions that had already taken place. Any finding one of the reasons the 2019 GMSA was conceived of is because of the current litigation is actually supported by, rather than inconsistent with CBNA and SPLC identifying separate exempt supplies given it was accepted (following the discussions with HMRC from 2017) that the nature of the services should be clarified and better defined. It is also consistent with the finding that the VAT team saw the 2019 GMSA as an opportunity to address gaps (in other words if there was a concern the Appellant’s views on characterisation did not coincide with HMRC’s then it would be entirely understandable why the Appellant would want to make its favoured analysis clearer by addressing gaps.)

Key provisions of the 2019 GMSA inconsistent?

[78]It is also argued that the FTT’s conclusion on a single supply is inconsistent with the express distinction drawn in Appendix C between Business Delivery Services (that related directly to transactions entered into with clients) and Support Services (that provided more generic business support “one stage removed” from such transactions), and with the fact that clause 3b) provided the monthly invoices “shall identify the Service(s) provided and for each such Service the compensation due..”. The Appellant notes the attribution of specific services to individual business areas was consistent with the specimen and actual invoices under the earlier GMSAs and should not have been ignored.[79]We reject this submission. The FTT clearly appreciated the provisions at Appendix C describing them as “new” and going on to set them out at detail at [132]. In the following paragraph it recorded how Appendix D itemised services which aligned with the Business Delivery and Support Services described in Appendix C. It also noted (at [282]) in relation to Appendix C the distinction that Mr Hitchmough relies on between support to client transactions and those more residual. There can thus be no issue regarding the FTT not understanding the materials before it relied on by the Appellant.[80]There is also no inconsistency between the points relied on above by the Appellant and the FTT’s conclusion that the services were undifferentiated. As mentioned above the FTT concluded on the basis of its analysis of the contractual arrangements that there was a single service. Having found that nothing had changed in substance, as it was entitled to in view of the evidence it heard to that effect, and having concluded that just the descriptions had changed, it remained open to the FTT to conclude the services remained undifferentiated despite the 2019 GMSA changes. There is also nothing in the point that the invoices were consistent with the earlier specimens and itemisation there. To the extent invoices itemised services according to certain descriptions that would not mean the FTT was not entitled nevertheless to consider that the provision of service remained an undifferentiated provision of support function service.[81]There was accordingly no error as suggested in the FTT’s treatment of the 2019 GMSA or any inconsistency, as the Appellant argues, with the FTT’s statement that it had taken the contractual documents “as a whole” in reaching its conclusion. The FTT had clearly taken the 2019 GMSA into account but had simply reached a different view on its significance to the Appellant.[82]Ground 2 therefore fails.[83]Under this Ground the Appellant highlights a number of features which are said to amount an error of law in the approach the FTT took to its analysis of the contract. Mr Hitchmough drew a distinction between looking behind the contract (which he made clear was not CBNA’s case) and looking beyond it to fill in gaps. Both parties are agreed one can look at the surrounding circumstances and context in accordance with normal principle of contractual interpretation as part of determining what the contractual obligations are.[84]In particular the Appellant points to the fact, the contracts were:(1) Intra-group framework agreements and so would not seek to replicate full precise terms that might be seen in a contract between two unconnected entities covering specific services;(2) that they sought to identify not Levob-type suppliesbut CPP-type composite supplies (by reference to language of “essential” and “ancillary” which correlated to the principal/ancillary distinctions under CPP – see clause 6.3 of EAP at [35]); and that(3) Mr Bradley’s evidence that some of the “reasonable results” produced by IEITI were “wrong in certain aspects” for example that it took a “bottom up” aggregation approach rather than a “top down” one which looked at the nature and objective of the whole service.[85]We disagree any of the specific points amount to an error of law. Firstly we note that the FTT recorded the submissions about the purpose of the GMSAs at [287] and responded to it at [288]. The FTT did not fail to consider the point. The FTT’s essential point regarding the lack of detail in the contracts was that despite the intra-group nature of those, in circumstances where the EAP had envisaged invoicing would deal with intra group charging, that if more detail had been required then it would have been provided for. The intra-group nature of the arrangements was not therefore a reason not to regard the contractual arrangements as reflecting the entirety of the arrangement. Mr Hitchmough explained he was not saying the contract did not conform to economic reality but, consistent with his case that the FTT needed to look “beyond” not “behind” the contract, that there were gaps that needed filling. However, as Mr Beal rightly responded that rather presupposed the existence of gaps that needed filling. The FTT’s point here was that there were none.[86]As to the other two points concerning respectively the CPP focus of the EAP, and the limitations of the IETI tool, the FTT did not make any assumptions that in fact relied on the outcome of those tools for its analysis that the contract provided for an undifferentiated supply so it is difficult to see how therefore these points were material. As already mentioned above under Ground 1, the contract effectively contained a mechanism which it was hoped would characterise services as single or separate. The FTT correctly noted that the scope of the service was, pursuant to the contractual arrangement, determined by this mechanism. But what the FTT was not doing was relying on the mechanism from the point of view of the accuracy of the outcome that it generated. The CPP focus of the mechanism, and the limitation of the IETI tool (which as Mr Beal pointed out was not in any event part of the contractual arrangement) did not (and could not because it would be a question of legal characterisation to be determined ultimately by the tribunal) answer the question of how the contractual arrangements should be characterised for the purpose of whether there were single or multiple supplies.[87]The Appellant also argues under this ground that the FTT failed to consider other evidence that was inconsistent with its conclusion that there was a single supply. Mr Hitchmough’s submissions highlighted for instance findings regarding specialised personnel in the business areas ([52]) in relation to the bespoke governing and commissioning processes ([57]), the different procurement process for support services ([85]) the fact Business Delivery process was not used for Support Services, and the fact support Services were “one step removed” from the transactions with clients.[88]Thus the essential point made here is the bespoke nature of what was required in respect of Business Delivery services from the point of view of each of the seven business areas, which was to be contrasted with the generic nature of the Support Services and also that there were for instance different procurement processes for the two types of services.[89]We disagree there was any error by the FTT here. The first point we make in response is that none of these issues would mean the FTT was not entitled to take the view of the contract that it did (and Mr Hitchmough was clear he was not arguing the contract did not reflect economic reality). The second point is that when these aspects are considered (we consider they were under the topics of indivisibility, indispensability and separate availability), neither the bespoke nature of what individual business areas required, their different role in relation to the onward services SPLC provided to its clients, nor the different procurement were necessarily inconsistent with there being a single undifferentiated supply from CBNA to SPLC. The nature of onwards supplies by definition concerned what happened after the relevant supply was made. As regards procurement process that focussed what happened before the relevant supply was made.[90]We also reject Mr Hitchmough’s criticism of the FTT that at no point did it consider the findings made in respect of Business Delivery and ask how many Business Delivery Services had been made and that it simply assumed one overarching supply. The FTT did not simply assume such overarching supply. Rather,that was where the FTT’s contractual analysis led it to and it is common ground that the contractual obligations represented the correct starting point.[91]Ground 3 therefore fails.[92]The Appellant points to various passages which are alleged to disclose errors of law in the key factors of indivisibility and indispensability. (There is no dispute as to the decisive nature of these factors. Indivisibility it will be recalled is where 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. Indispensability is where the transaction has a single economic aim or where the combination of different elements is important to the typical recipient of the supplies – as explained by Advocate General Kokott in Frenetikexito – see [11] above).[93]In particular the Appellant points to [290] where the FTT said:
“there is nothing in the contractual documents to suggest that the services are not closely linked or that the focus should be on internal divisions within the business as the contractual analysis reflects the VAT classification of examining which legal entity has made what supplies to which legal entity for consideration”
[94]The Appellant also refers to the FTT’s reliance on the Business Delivery Services and Support Services being “necessary for SPLC to be able to undertake its business” (at [291], [293] and [294]) and that “the economic purpose of the services provided by CBNA under the GMSA is to allow SPLC (and other JPMC affiliates in other jurisdictions) to carry on business in a consistent fashion…” ([292]).[95]This, the Appellant argues, showed the FTT erred in assuming there was a presumption in favour of a single supply that could be displaced by evidence whereas it was well settled the presumption was that supplies were separate and distinct. It is also argued that the reference to “close link” was in error as that was neither sufficient nor decisive, and that the approach of considering what aspects were necessary was too broad and high level. Every business might consider a number of distinct elements to be necessary e.g. premises, staff, utilities but it would be absurd if that meant the elements were indispensable.[96]In advancing his submission that the FTT had used the concept of close-link wrongly, Mr Hitchmough explained there were numerous examples in the case-law where closely linked supplies were nevertheless found to be separate. Thus in BGZ Leasing (Case C-224/11) the facts concerned a taxpayer leasing company which leased goods to customers but also took out insurance in respect of the goods then re-invoiced the insurance premiums. The insurance and leasing were obviously linked in that the insurance could only be used for the goods yet there were separate services. Similarly in Tellmer property (Case C-572/07)the service of cleaning the common parts of a building was linked to the landlords rental to tenants of that building, and in Harley-Davidson Europe Ltd v HMRC [2017] UKFTT 873 the individual membership benefits were linked yet the different elements were nevertheless found to be separate supplies.[97]Mr Hitchmough also argued the FTT’s reliance on close-link was also not consistent with indispensability (i.e. that one element would be pointless unless the other service could be obtained at the same time from the same supplier as part of the same transaction). The FTT’s analysis also did not take account that the composition of services required by individual group companies from CBNA will differ.[98]We disagree that any of these points amount to an error of law:(1) The FTT was not adopting any presumption in favour of a single supply (but having concluded upon its contractual analysis – the right starting point - that there was a single supply) and was explaining why that was the case.(2) The reference to close link, as is clear from [291] spoke to the terminology used in Gloucestershire Hospitals) where the UT had found it useful (at [116(i)] of its decision) to consider “Are the different elements of the transaction closely linked?” The UT (and the FTT here which followed the same approach) proceeded according to the four sub-questions in its remaining reasoning. The UT (and equally the FTT here) did this as part of answering the Levob test 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”. That was the sense of “closely linked” which the Advocate General in Frenetikexito, the latest case to consider the CJEU’s case-law and a case which was also incorporated within the UT’s analysis in Gloucestershire Hospitals referred to. (At paragraph 22 of her opinion Advocate General Kokott explained “Where there is a single complex supply, multiple elements of the supply form one sui generis supply. That is the situation, according to the Court’s case-law, where the supply by the taxable person consists of two or more elements or acts which are so closely linked that they form objectively, a single indivisible economic supply, which it would be artificial to consider separately.”) The Appellant does not argue the approach that was taken by the UT in Gloucestershire Hospitals was wrong. The factor of “closely linked” was not being used as a sufficient or decisive feature but part of what the UT in Gloucestershire Hospitals referred to (at [116]) as standing back and applying the Levob test “holistically”. The FTT was clearly not contemplating the kind of link between elements at issue in BGZ, Tellmer or Harley Davidson and saying that because of that link the supply was a single one. Having analysed the starting point that under the contract there was a single service, all the FTT was saying was that there was nothing in the contract which suggested the elements were not closely-linked in the sense that term was deployed in Levob.(3) The reference to the single economic purpose addressed the UT’s reference in Gloucestershire Hospitals’ discussion of the AG opinion in Frenetikexito- under the heading of indispensability to “Does the transaction have a single economic aim or is the combination of different elements important to the typical recipient of the supplies?”. There was, the FTT concluded, a single economic aim uniting the elements namely carrying on business in a regulatorily compliant way. The elements were each needed for that role. The FTT was not however reasoning that simply because the elements were necessary they were therefore indispensable but referring to necessity as a common feature that meant for instance a premises or HR supply would not be needed on its own without also the trading infrastructure supply in order to achieve the economic aim. It was thus the inter-relationship between the elements in contention that was key. It would be pointless to get Support Services without Business Delivery Services and vice versa as both were indispensable to enable SPLC to achieve its economic purpose. We also reject the argument that the FTT’s articulation of economic aim represented an error of law because it was put at too broad or high a level. Mr Hitchmough suggested the aim was in any case some kind generic aim that would apply to any supplier. While the Advocate General’s opinion in Frenetikexito pointed out that the presence of a single economic purpose is not inconsistent with separate supplies, the factor is clearly one which is embedded in the jurisprudence of the CJEU and there appears no principled basis for saying a single economic purpose is not a valid encapsulation of the service simply because of its breadth. As Mr Beal pointed out there are examples in the case law of a single supply being found on the basis of a package of supplies of everything that the recipient needs (for instance the single aim of providing a package of various primary healthcare services to an NHS body in respect of prisoners such as in Spectrum but where the contents of the package might differ). Also, as Mr Beal’s submissions highlighted, there was a purpose to packaging the back and mid-office functions entailed by the Business Delivery and Support Services needed by affiliates into a single supply to achieve standardisation and consistency.[99]Ground 4 therefore fails.

Ground 5: The FTT misapplied the concept of separate availability

[100]In relation to separate access or availability the Appellant argues the FTT wrongly gave this a decisive role rather than a supportive one as it should have (the FTT saw separate access wrongly as part of indivisibility and indispensability). The Appellant says this error is shown by the opening words “As such, it must follow that as the different elements of the supply are indivisible and indispensable in order to achieve the aim of the supply…(emphasis added)” in FTT [295] (which followed on from the FTT’s discussion of separate availability in [293]).[101]We disagree. In the preceding paragraph [293] it is clear the FTT was considering separate availability as part of the holistic approach to the Levob test endorsed in Gloucestershire Hospitals of considering whether it would be artificial to split the different elements into separate supplies. The FTT was basically explaining that SPLC needed these services in order to trade and that it could only get them from CBNA. There was therefore no choice of separate availability of them in terms of SPLC getting the services or getting them elsewhere. The FTT did therefore consider separate availability separately. The reference to “As such” in relation to indivisibility and indispensability in [295] does not assist. That refers not just to the immediately preceding discussion on separate availability but from the preceding paragraph [294] which dealt with the views of the typical consumer in SPLC’s position and made the point that both the Business Delivery and Support Services were essential to carry on the business.[102]The Appellant also argues that the FTT’s conclusion at [293] ignored that different affiliates had different needs and would only purchase from CBNA the services they required. Business areas could, and did, choose which services to receive and as the FTT found at [47] they did not receive supplies in relation to systems they did not use.[103]We do not see how this point assists. Even if we put to one side evidential issues about what other affiliates did, at the legal entity level, there is no inconsistency between business areas being able to pick and choose elements and there being a single supply of support function service from CBNA. We note in passing here that there has been some blurring in terms of receiving the supply. Only SPLC was the recipient of the supply. The business areas relationship within SPLC regarding which services they used is irrelevant. At the entity level it would not matter that a certain business area was not getting a service as long as the business area that needed it (and therefore by definition SPLC) was getting it. At the entity level the precise content of the supply function service would vary but what the legal entity (the typical consumer) is interested in is getting the package of support functions in order to carry on its business. Standing back it also does not seem apt to describe this situation as one where the Appellant is not picking and choosing elements in the sense of saying that it will have a particular element but not another one, or that it would get a particular element that it did not want from CBNA from somewhere else. SPLC was required to take all that it needed to carry out its business and it had to take that from CBNA.[104]Mr Hitchmough’s oral submissions also took issue with the FTT’s (and HMRC’s) understanding of the separate availability test (that it concerned whether one could get the service elsewhere). The Appellant argues the FTT and HMRC misinterpreted the test of separate availability. It was not about SPLC not being able to “shop” elsewhere but about whether it could receive one service without the other. SPLC did not need to take every service on offer and did not do so. The FTT in Spectrum approached the test in that way too (as per [65] of Spectrum FTT).[105]It was not disputed between the parties, and was advanced with some vigour by Mr Hitchmough, that indivisibility and indispensability were of decisive importance whilst separate availability and invoicing were only supporting and not decisive (as per the CJEU in Frenetikexito). It was held in Spectrum FTT at [61] that those are determinative if they are established on the evidence. We have found that the FTT did not err in its approach and conclusions on indivisibility and indispensability, and we do not therefore need to address this argument. We did not hear full argument on the issue. However, we address it below briefly.[106]The question arises whether the focus of the separate availability test is on whether the typical consumer can choose whether to receive particular elements and not others or must receive the package whether or not the particular elements are required. Or whether it concerns whether they can choose to obtain elements of the package that they need from another supplier. We are of the view that there is some overlap in these issues as if one can choose not to get an element it can also be the case that one can then get that element somewhere else. In our view the approach may depend on the factual matrix.[107]To resolve this issue, it is instructive to go back to the authorities. This reveals that in Frenetikexito there is a difference between the CJEU’s formulation of separate availability (which is more consistent with the FTT’s and HMRC’s view of the test entailing the question of whether services can be obtained elsewhere) and the Advocate General’s conception of it which entails considering whether the different elements that make up the supply are available separately or whether the customer must take all the elements together (see [11] above). The CJEU in Frenetikexito at [39] cited in support of its proposition on separate access [43] of the CJEU’s decision in BGZ Leasing. That stated:
“The fact that insurance covering the leased item is required by the lessor, as appears to be the case in the transaction at issue in the main proceedings, does not invalidate that finding [that the insurance constituted an end itself for the lessee and not only the means to enjoy that service under the best conditions – per the preceding paragraph 42]. In particular, it must be observed that, in the circumstances at issue in the main proceedings, if the lessee is required to ensure that the leased item is insured, he has the option of insuring that with the insurance company of his choice. Thus, the requirement for insurance cover cannot, in itself, mean that a supply of insurance by the lessor, such as that at issue in the main proceedings, is indivisible or ancillary to the supply of the leasing services.”
[108]By contrast, the Advocate General’s opinion at [29] talks about separate availability by reference to the case of Mesto Zamberk (Case C-18/12) where a typical recipient could not receive one element without another (there the ticket holder to the aquatic park was given access to all the facilities regardless of which facilities they used).[109]In view of the way the CJEU has described the test as outlined above, the FTT cannot be criticised for addressing the point of “separate availability” from the perspective of whether the typical consumer could get the service from someone else (it was clear on the facts the FTT found an affiliate could not get it from somewhere else). There was therefore no error of law in its analysis on separate availability.[110]Mr Hitchmough also submitted (although we could not see the point had been made under CBNA’s grounds of appeal before us) that while the FTT referred to indivisibility and indispensability in passing at no point had it considered and applied them. We disagree. The reasoning was encompassed in the holistic considerations of the four questions making up the Levob test which the UT GloucestershireHospitals had outlined. The FTT plainly considered indivisibility and indispensability as part of that.[111]Ground 5 therefore fails.

Ground 6: The FTT placed undue (and in any event incorrect) reliance on invoicing

[112]Under this ground the Appellant argues the FTT gave invoicing a decisive rather than supportive role in view of its conclusions that “the scope of the service was defined by the invoices” ([274]) and that “distinct services were to be identified and invoiced separately” ([276]). It further erred in its analysis as the invoices in fact supported a conclusion of multiple supplies.[113]There is some overlap here with the errors alleged under Ground 1 and we can therefore deal with this briefly. Both the quoted paragraphs are in the section of the FTT’s decision addressing the contractual analysis. They were merely summarising what the contract said. Both statements are ambiguous as to whether the identification and invoicing indicative of separate services was to be done by itemisation or by separate invoices (i.e. the FTT did not rule out the possibility separate services could appear on one invoice). There is then no mention of invoicing in the subsequent sections and therefore no question of invoicing being given a decisive role. That is a mischaracterisation of the FTT’s reasoning. There was also no misinterpretation of the contract for the reasons already discussed.[114]Ground 6 therefore fails.

Other submissions – who is the typical consumer?

[115]Both parties’ submissions engaged with the question of who was the typical consumer (although this issue was not specifically raised in the pleadings). Mr Hitchmough argued the FTT had lost sight of the typical consumer: this was an affiliate company who obtained a bespoke combination of services from CBNA according to its needs. Mr Beal disagreed. He argued the typical consumer was SPLC and pointed out there was no evidence before the FTT about what other entities in the group did. In reply Mr Hitchmough said that ignored the reference to “typical” in the test and was not also reconcilable with Mesto Zamberk. SPLC was not the only contractual counterparty. There was also the FTT’s finding that individual business areas did not buy systems they did not need and the FTT had made wider findings explaining the group structure and hierarchy.[116]It is not clear from the submissions made to us what evidence was put before the FTT to enable it to identify a typical affiliate. We are not persuaded however that even if the Appellant’s view were correct this would assist their case. The fact an affiliate was able to pick and choose elements of service would not necessarily be inconsistent with there being a composite supply of support (i.e. customisable back and mid office functions) which were provided depending on what the affiliate needed and where the affiliate paid for what it got. Also, as already discussed, there is a question as to whether it is right to describe the picking of services as being a matter of choice. The findings were to the effect that services were chosen because they were required in order to carry out the business. Once they were required they then had to be provided by CBNA. The question of what was necessary might vary from affiliate to affiliate but that would not necessarily mean that separate services are being provided, just that the particular content of the support functions might vary depending on the particular affiliate’s business needs.

Conclusion on single vs. multiple supplies grounds

[117]For the reasons set out above, none of the grounds, that the FTT erred in law, are made out. As the Appellant accepts that if the FTT’s decision that there was a single supply was found to be correct it accepts that the characterisation of such supply is, as the FTT found, that it is taxable (although it disputes the FTT’s reasoning on the characterisation of the supply - we deal with this below) the dismissal of these grounds is sufficient to dispose of CBNA’s appeal. Nevertheless in recognition of the full and detailed argument we heard on the exemption issue, which the FTT dealt with too (on an obiter basis), we shall address that issue in the following section albeit briefly. The exemption issue[118]CBNA’s case is that many of the elements which combine to make up each supply of Business Delivery Services fall within the securities exemption and that those exempt elements predominate with the result that each supply of Business Delivery Services is exempt. Under this ground CBNA argues variously the FTT was wrong to conclude the securities exemption did not apply.

Law

[119]The securities exemption is set out in Article 135.1 of the PVD. That provides that Member States “shall exempt the following transactions” which include (at f) :
“transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities...”
[120]It is also relevant to understand the parties’ arguments on the case-law on the exemptions in respect of payments and transfers and in respect of the management of special investment funds. Those exemptions are worded as follows:
“d) transactions, including negotiation, concerning…payments, transfers…” … (g) the management of special investment funds as defined by Member States...”
[121]The securities exemption was implemented into UK law by Group 5 Schedule 9 VATA 1994 item 6 (securities) and item 5 (negotiation) (which applies in respect of both the payment exemption and securities exemption). The payment exemption is provided for at item 1. The FTT Decision regarding

The exemption issue

[122]Earlier in its section on its factual findings the FTT set out at length (at [151] to [235]) facts regarding CBNA’s role in supplying trading infrastructure in relation to SPLC’s transactions by reference to a selection of example securities transactions. The examples were intended to be representative of the range of transactions undertaken in the Markets business segment and covered both cash and derivative instruments. The cash transactions involved straightforward purchases of listed shares or bonds by clients, with no ongoing obligations following execution. Payment was made by the client, and SPLC delivered the securities. The derivative examples were more complex and included both exchange-traded and over-the-counter (OTC) instruments, such as call options, dividend-adjusted call options, credit default swaps, Euro interest rate swaps, and swaptions (options to enter into swap contracts).[123]In relation to CBNA’s role in such transactions, the FTT’s findings went on to detail provision of for instance trading models used in pricing and execution algorithms, risk management and hedging. The findings covered CBNA’s role in determining and agreeing the economic terms of the transaction as well as its role in performance and implementation of the transaction.[124]As to the relevant legal test the FTT relied on the reasoning from Target Group Ltd v HMRC [2021] EWCA Civ 1043.That included the passage below (from [79]- [81] of the CA’s decision). Target CA concerned the applicability of the payment exemption to a taxpayer company which administered loans made and whose activities included operating individual loan accounts and instigating and processing payments due from borrowers. The reasoning included analysis of some of the CJEU case law including that relating to the securities exemption (which we come on to address in more detail below): “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.[125]The FTT noted the service could be supplied by a third party but that exemption is determined by the nature of the services provided. It continued at [309]: “…It is therefore necessary to consider whether the transactions in the present case are essentially administrative or technical transactions in nature and outside the exemption, as Mr Beal contends, or, as Mr Hitchmough contends, they are financial in nature and fall within the exemption.310. Mr Hitchmough contends that the evidence supports CBNA’s case. For example, with regard to the hedging transaction, described at paragraphs 234 and 235 above, he says it is clear that CBNA’s role isn’t confined to giving instructions or providing some elaborate form of technical support, rather that CBNA, through the trading infrastructure, was pointing out to SPLC’s front office traders opportunities to enter into other transactions in securities and in some case identifying and executing the hedging transaction itself with no involvement at all from the trader. In other cases where there is trader involvement, Mr Hitchmough contends that in addition to pointing out opportunities, CBNA will play a specific essential and intrinsic role in setting the key economic terms of that hedging transaction, such as the price.311. However, I do not agree. It would seem that, although it is accepted that SPLC would not be able to function without the trading infrastructure of CBNA, as Mr Beal submits what CBNA is in fact providing is a technical or administrative service for SPLC. He describes the services as provided by CBNA as data/information gathering, collection, capture, transmission, holding, processing, monitoring, analysis, reconciliation, checking, verification, storage, management, giving or receiving instructions, none of which alter the legal and financial situation between SPLC and its clients or creates, alters or extinguishes those parties’ rights and obligations in respect of securities and none of which could be characterised as an exempt supply.312. The fact that SPLC could not trade without the service it receives from CBNA is not, however, in itself not enough to bring it within the exemption as can be seen from the unsuccessful arguments advanced in Bookit, NEC and DPAS regarding the performance of services that were essential features of the transactions concerned, namely sales of Odeon or NEC tickets (in Bookit and NEC, respectively) or payment of dentists (DPAS).[126]Target CA was subsequently upheld on appeal to the Supreme Court in Target Group Ltd v HMRC [2023] UKSC 35 (issued after the FTT had issued its decision).[127]Target SC summarised what had been referred to in that litigation as the narrow and broad view the European Court’s formulation in [66] of SDC (set out below at [134]) that the services provided “have the effect of transferring funds and entail changes in the legal and financial situation”.The Supreme Court (at [28]) explained that what “…remained arguably unclear was whether the services must in themselves have that effect and make that change (‘the narrow interpretation’) or whether it was sufficient for them to have that causal effect (‘the wider interpretation’).[128]Target SC ruled in favour of the narrow interpretation setting out at [56] that:
“The narrow interpretation means that the services must in themselves have the effect of transferring funds and changing the legal and financial situation. It is not enough to give instructions to do so thereby triggering a transfer or payment. It is not enough to perform a service which is essential to the carrying out of the transfer or payment, nor one which automatically and inevitably leads to transfer or payment. It is necessary to be involved in the carrying out or execution of the transfer or payment – its ‘materialisation’. This requires functional participation and performance. Causation is insufficient, however inevitable the consequences.”
[129]CBNA’s grounds of appeal as pursued before us in brief are that:(1) The FTT failed to see that the test in respect of the scope of the securities exemption was broader in a number of respects as compared to the exemption for payments and transfers. It was not limited to services that transfer title to securities or the performance of a transaction in securities. The FTT was thus wrong to rely on Target CA which had concerned the exemption for payments and transfers.(2) The FTT’s conclusion the securities exemption did not apply was inconsistent with various of its own factual findings.(3) The FTT failed to understand and apply the breadth of the exemption regarding “negotiation”.[130]We address these issues in turn.

Scope of securities exemption

[131]In developing CBNA’s submissions, Mr Hitchmough, took us through, skilfully and in some detail, the evolution of the case-law relating to the three financial service exemptions (the payment exemption, the securities exemption and the exemption in respect of special investment funds). Mr Beal likewise addressed this jurisprudence in HMRC’s response.[132]In broad terms both parties draw support in their interpretation of the securities exemption from other exemptions but in a different way. CBNA say the securities exemption is not like the payment exemption but has commonality with the principles in relation to the exemption for special investment funds. HMRC on the other hand say the securities and payment exemptions are more akin; they are both transaction based exemptions and distinct from the special investment fund exemption which refers to management of funds (which is based on activity). In our view it is sufficient for present purposes to turn directly to two of the CJEU cases specifically concerned with the securities exemption in order to expose the relevant principles.

Case-law on securities exemption

[133]The first case is Sparekassernes Datacenter v Skatteministeriet (Case C-2/95) ) (“SDC”). That concerned provision of data-handling services to banks effecting transactions with their customers and both the payments and securities exemption. A key proposition established by the court in that case was that the fact that the service provider was a third party to that bank /customer relationship did not preclude exemption.[134]The court proceeded to explain the relevant principles which applied for services to fall in either the payment/transfer or securities exemptions as follows (at [66]):
“In order to be characterised as exempt transactions for the purposes of points (3) [this referred to the payment/transfer exemption] and (5) [this referred to the securities exemption] of art 13B, the services provided by a data-handling centre must, viewed broadly, form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For ‘a transaction concerning transfers’, the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre’s responsibility vis-a-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.”
[135]As regards the securities exemption specifically, the court went on to note (at [73]) that trade in securities “involves acts which alter the legal and financial situation as between the parties and are comparable to those involved in the case of a transfer or a payment.” (In relation to the particular facts of the case, the Court noted , there was however insufficient information from the referring domestic court to determine the precise nature of SDC’s services concerning advice on and trade in securities. Insofar as the facts indicated the services included provision of financial information the court made clear that was not covered by the exemption).[136]The second case is CSC Financial Services Ltd v CCE (Case C-235/00). There the service provision concerned a call centre service to a financial institution in relation to sale of an investment product (providing information, application forms, checking and processing those and dealing with cancellation requests in return for a fee).[137]The court made extensive reference to its previous analysis in SDC noting the following points in order for the relevant services to be exempt (at [25] to [27]).(1) The services had to: “Viewed broadly form a distinct whole, fulfilling in effect the specific, essential functions of a service described in [the payment and securities exemptions]”.(2) As regards the payment exemption, the services were to be “distinguished from a mere physical or technical supply…in particular the question was whether [the data handling centre’s responsibility] is restricted to technical aspects or whether it extends to the specific essential aspects of the transactions.”(3) The CJEU noted the same analysis applied “mutatis mutandis” to transactions in securities.[138]The CJEU went on to note (at [28]) that:
“trade in securities involves acts which alter the legal and financial situation as between the parties and are comparable to those involved in the case of a transfer or a payment. The supply of a mere physical technical or administrative service, which does not alter the legal or financial situation would not therefore appear to be covered by the exemption…”
[139]The CJEU also made a point of recognising (at [29]) that the securities exemption made a specific exclusion for management and safekeeping. Those, it noted, were not activities which altered the legal or financial position.[140]The CJEU proceeded to also hold that the mere fact a constituent element was essential for completing an exempt transaction did not mean it was exempt concluding at [33]:
“It follows from the foregoing that the words ‘transactions in securities’ refer to transactions liable to create, alter or extinguish parties’ rights and obligations in respect of securities.”
[141]It is also relevant to note a passage from the Advocate General’s opinion in this case given the reliance CBNA place on it. At [29] the Advocate General explained:
“Only operations which directly affect the legal relationship embodied in the security and are capable of having an impact on the substance thereof, such as, among others, the issue, transfer, endorsement, payment and redemption of the security, fall within the scope of the tax exemption under review here. Other operations, although making a contribution, are excluded from the exemption. Clear proof of this is apparent in the fact that the provision at issue indicates that the tax advantage is not to apply to the management and safekeeping of securities. Both such operations, safekeeping and management, are legal operations which relate to securities but cannot affect the legal relationship embodied in them.”

Discussion on scope of securities exemption

[142]CBNA argues that while the FTT was broadly correct to distinguish between mere technical or administrative services and those falling within the scope of the exemption, it erred in concluding that the Business Delivery Services did not alter the legal and financial situation or the rights and obligations of the parties. CBNA further contends that the FTT failed to identify the specific and essential functions of the transactions in issue and the way in which the Business Delivery Services performed them, and that it adopted an unduly restrictive approach to determining whether those services created, altered, or extinguished legal rights and obligations.[143]As HMRC’s submissions indicated, and as we accept, some of the propositions advanced by CBNA are uncontroversial. For example, it is correct that a transaction in securities is not confined to a single event or action, unlike a payment transaction. It is also clear that in principle a third party may perform specific and essential functions of a transaction in securities and, if so, may fall within the scope of the exemption. Nevertheless however complex the nature of the securities transaction and whatever the identity of the person performing the transaction, the key question remains whether the service in question has the effect of altering the legal and financial position of the parties. On the facts here it remains necessary to identify a role played by CBNA in an event or action that actually changes the legal and financial relationship between SPLC and its client or other counterparties.[144]To the extent CBNA argues that the reasoning in TargetCA is inapplicable to the securities exemption because it concerned only the payments exemption, then we disagree. The test applied by the FTT, by reference to the Court of Appeal’s reasoning in Target, aligns with the requirement applicable to both the payment and securities exemptions that the service must alter the legal and financial position of the transaction whether that is a transaction by way of payment or transfer, or a transaction in securities. That approach is also entirely consistent with the CJEU’s decision in CSC. Thus when we compare the interpretation of scope, adopted by the FTT and in particular the requirement that the service result in a change in the legal and financial position with the correct legal test, we find no error.[145]We also reject the suggestion that the FTT erred by adopting a narrow view of the exemption, excluding services with merely a causal effect on the legal position. The Supreme Court in Target made clear that the narrow view is the correct one. There is nothing in the reasoning of that case—or in principle—that suggests a different approach would not apply by analogy to the securities exemption where essentially the same formulation of the test is set out. While the particular nature of securities transactions may differ from payment transactions, we agree with Mr Beal’s submission that the exemption remains focussed on the transaction itself and does not extend to services that merely facilitate or cause such changes. The securities exemption, like the payments exemption, requires a functional focus on the transaction itself.[146]We did not in any case understand Mr Hitchmough, following his oral submissions, to be relying on a causality-based argument to justify the applicability of the exemption on the facts of CBNA’s case.[147]His overarching point was that securities transactions could be more complex than payment transactions and that the specific and essential functions of a transaction in securities were different from the specific and essential function in the rather more simple case of a payment or transfer. Thus while a focus on “execution” made sense in the context of payments that was not the case for securities transactions. In relation to which a focus on “execution” made sense.[148]We do not disagree that securities transactions may be more complex. However, we do not see how that necessarily assists CBNA in showing the FTT erred in its conclusion. While the relevant analysis may need to be applied to a transaction comprising multiple legs, and in the case of derivatives ongoing obligations, that does not mean the underlying test itself—whether the service alters the legal and financial relationship—is any broader. It just means there are in principle more elements, so long as they can be described as falling within the securities transaction to which that test might arguably be applied to.[149]In advancing its case CBNA put particular emphasis on various passages from SDC and CSC, but we do not accept that any of those when read in the context of the court’s reasoning broaden the scope of the exemption or impose any alternative tests.[150]Thus CBNA referred to paragraph [69] of SDC, where the Court described a relevant service in relation to a transaction in securities as forming “an integral part of the system of the market in marketable securities.” However, this was not put forward as a separate legal test for exemption but a description of the nature of the particular service in that case. The key point—undisputed there —was that trades in securities would clearly fall within the exemption. We reject any suggestion, to the extent this was made in CBNA’s written submissions, that the securities exemption through such alternative formulation did not also require the service to involve a change in the legal and financial situation.[151]CBNA also cited paragraph [72] of SDC, which states that the exemption should “include transactions on the market in marketable securities.” Again, this merely affirms that market trades are within the exemption and was clearly not being put forward as a separate test of whether a particular service qualified.[152]Mr Hitchmough also emphasised the phrase “liable to…” in the wording of the CJEU’s test but there is no indication in the CJEU’s reasoning that this was intended to mark any substantive reformulation of the CJEU’s view on the scope of the exemption. In the light of what we have said about the applicability of the Supreme Court’s reasoning in Target rejecting a causality-based test (the “wider” approach) for payment exemptions it clearly cannot mean that sort of test.[153]Similarly, the reference to the test for the securities exemption applying “mutatis mutandis” does not assist. While securities transactions may differ in nature, there is no indication in the Court’s reasoning that the key test of whether the legal and financial position is altered should be materially modified. If that were the case, it would have been expected that such change would be reflected explicitly in the CJEU’s description of the security exemption’s scope at paragraph [33] of CSC.[154]CBNA also put particular store by the Advocate General in CSC’s description at [29] (see [141] above) of the operations to which the securities exemption applied including “the issue, transfer, endorsement, payment, or redemption of the security”. It also submits in effect that the paragraph means that any other operation “capable of having an impact on the substance of the legal relationship of the parties” would be eligible for exemption. However, we consider that the paragraph relied upon actually supports rather than detracts from the countervailing view (advanced by HMRC) that the exemption is very much focussed on the transaction in securities itself. The transactional nature of the operations the Advocate General specifically described, and his preceding explanation that “Only operations which directly affect the legal relationship embodied in the security and are capable of having an impact on the substance thereof” (emphasis added) fall within scope make clear that was referring to operations that altered the legal position as a consequence of the transaction itself—not to services that merely affected the content or terms of the transaction. While his list of such operations was non-exhaustive, the operations he listed, and his emphasis on such operations “directly affecting the legal relationship” are not consistent with the words “capable of having an impact of the substance” of the legal relationship signifying any intention on his part to adopt a broader formulation of the test for exemption.[155]CBNA also invokes the concept of “intrinsic connection,” as developed in the context of the case-law on exemption for special investment funds (see K and DBKAG v Finanzamt Osterreich (Case C-58/20 and C-59/20) at [49]), and argues that it should apply similarly to the securities exemption. However, in agreement with Mr Beal, we do not accept that the intrinsic connection test should be imported into the securities context in a way that broadens the exemption. As discussed above the exemption in relation to special investment funds is concerned with activity whereas the securities (and payments) exemption is concerned with transactions. In the cases cited, the intrinsic connection test was applied in relation to “management” services. The special investment fund exemption is solely in respect of management of special investment funds whereas the exemption for securities specifically excludes management. In CSC the CJEU, when formulating the test of altering the legal relationship, noted that management is expressly excluded from the scope of the exemption. Further for the intrinsically connected service to fall within the exemption it has to have the effect of performing the essential function of management of a special investment fund.[156]Finally, it is argued that the “creation, alteration or extinguishing” of rights or obligations in respect of securities must include the settling of economic terms, such as price, timing, or hedging obligations. We do not accept that proposition. The setting of commercial terms may be important and necessary to the transaction, but it does not itself constitute a change in the legal and financial relationship. The exemption remains focused on services that effect such a change. (That is consonant with the way the Advocate General envisaged the test applying in CSC in referring to various transactional operations themselves, not the process by which those operations are agreed.)[157]In conclusion, as regards the central legal issue in dispute concerning the breadth of the exemption, we agree with HMRC that the exemption must be construed with a focus on the transaction which effects an alteration to the legal and financial relationship. That was the construction the FTT in essence adopted. We consider it was correct to do so.

CBNA’s ground of appeal that the FTT’s conclusion was inconsistent with other findings

[158]CBNA submitted that certain findings of fact made by the FTT were inconsistent with its overall conclusion that the services provided were administrative or technical in nature. In particular, CBNA relied on paragraph [36] of the FTT’s decision, which recorded that:
“The QR, Technology, Operations and Market Risk functions work together to provide a specific combination of BD Services to each business area. As Mr Richardson explained, the trading infrastructure is made up of a: ‘…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.’”
[159]However, we do not accept that there is any inconsistency. The FTT’s reference to functions “required in order to carry out the transactions” does not imply that those functions themselves constituted exempt transactions in securities. The legal test is not one of necessity but of whether the service alters the legal and financial position between the parties. The fact that a function is operationally required does not, of itself, satisfy that test.[160]CBNA further argued that the FTT made findings which, properly understood, indicated that the services did alter the legal and financial relationship between SPLC and its clients. It pointed to findings at [160] and [184], which referred to execution algorithms, developed and maintained by QR, automatically executing transactions deciding ‘how, when and where’ to place orders, many of the functions performed (in whole or part) by trading infrastructure.”[161]It also relied on [169], which found that:
“Functions which ‘build and transfer those [client] transactions’ are performed (in whole or in part) by the trading infrastructure.”
[162]And at [228]–[235], CBNA refers to the fact the FTT recorded at [235] that:
“In some cases a hedging transaction is undertaken by CBNA (on behalf of SPLC) which nevertheless remains the contracting party, on a fully automated basis known as “auto-hedging”
. In those circumstances the decision to hedge is made by a CBNA system using QR algorithms and that system instructs another CBNA system to execute the trades.”[163]CBNA also submitted that its role in setting prices or determining pricing mechanisms altered the legal and financial situation. It further argued that execution algorithms implemented trading strategies within trader-set parameters ([160], [184]). The FTT had found that as to price setting:
“CBNA makes and implements those decisions.”
[164]In our view there is plainly no inconsistency between these findings and the FTT’s overall conclusion. The use of automated systems and algorithms, however sophisticated, does not alter the fact that the legal relationship is formed and executed between SPLC and its client or the relevant counterparty. As explained in FTT [160(1)] the execution algorithm makes decisions on the placement of orders. Similarly it is clear from [235] that SPLC remains the contracting party to the hedge albeit the decision to hedge is made by the CBNA system. The infrastructure supports the transaction but does not itself constitute its execution. Making a decision to implement a transaction is not the same as carrying out the transaction itself.[165]Similarly, CBNA argues its role regarding the allocation of orders between accounts ([189], [190]) effected a change in legal relationship in respect of the relevant client. It likens its role to that of the service provider in ATP Pension Service AS v Skatteministeriet (C-464/12).In that case it was held the creation of accounts by the service provider there established rights of pension customers in relation to pension funds – appearing to transform the worker’s claim against their employer to one held against the pension fund (see [82] referring to [70]). We agree with HMRC however that the allocation performed by CBNA is administrative in nature. CBNA is fulfilling a deal that has already been agreed between SPLC and its client – the legal or financial relationship is already altered as between SPLC and the client – CBNA’s role was in merely reflecting that practically.[166]Accordingly, we consider that the FTT’s findings of fact were consistent with its legal conclusions and that CBNA’s arguments do not disclose any error of law.

Negotiation in securities?

[167]In relation to the concept of “negotiation” the CJEU in CSC explained:
“38. Clearly, the words ‘including negotiation’ are not intended to define the principal object of the exemption laid down in the provision, but to extend the scope of the exemption to negotiation. 39. It is not necessary to consider the precise meaning of the word ‘negotiation’, which also appears in other provisions of the Sixth Directive, in art 13B(d)(l)-(4), in order to hold that, in the context of art 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties a to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract. 40. On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject-matter of the contract. In such a case, the sub-contractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question.”
[168]Mr Hitchmough emphasises the non-exhaustive nature of the CJEU’s discussion on what negotiation meant. In particular it covered other sorts of intermediary activity, not just negotiations in terms of bringing relevant parties together before conclusion of the contract.[169]On the facts here the FTT had found that the Operations team were, as well as being responsible for discussing with the client the amount and type of collateral needed, responsible for managing any disputes as to the collateral required and that resolving disputes was a large part of the collateral team’s responsibilities ([214(4)]). The FTT also found at [187] that CBNA were responsible for resolving any breaks in the clearing and settlement process and resolving issues where the netting calculations did not match.[170]It is true, as Mr Hitchmough points out, that, the FTT did not expressly deal with the question of whether and if so what any activity fell within the exemption insofar as it concerned “negotiation”. But it should be recalled this part of the FTT judgment concerning exemption was obiter; it was not strictly necessary for the FTT to address the argument in order to dispose of the appeal. If it had become necessary to deal with matter then we would not consider the services offered of collateral and payment dispute resolution to fall within what the CJEU had in mind when it spoke of as a service “rendered to, and remunerated by a contractual party as a distinct act of mediation”. Rather, although not clerical in character, it seems to us to more readily be characterised as an activity SPLC has entrusted to CBNA to carry out on its behalf and which it would otherwise have carried out itself.

Edwards v Bairstow errors

[171]CBNA, in its grounds of appeal, challenged the FTT’s conclusion that the services it provided to SPLC were merely technical or administrative in nature. It argued that such a characterisation was not open to the FTT on the basis of the evidence before it, invoking the principle in Edwards v Bairstow that a finding unsupported by evidence or based on a misunderstanding of the evidence may be set aside.[172]The Tribunal does not accept this submission. At [311] of its decision, the FTT concluded that the services in question were administrative and technical. That conclusion was plainly open to it on the evidence. While the modelling and infrastructure relied upon by CBNA may have been complex and operationally significant, it was nonetheless reasonable for the FTT to describe such services as technical. The Tribunal notes that CBNA’s reliance on certain factual findings to support its position has already been addressed above, and those findings do not, contrary to CBNA’s case, demonstrate that CBNA’s services effected a change in the legal and financial position.[173]CBNA also took issue with the FTT’s finding at [174] that the SPLC trader set the price quoted and determined the actual price, to the extent that this was intended to apply to all cash transactions. However, the Tribunal considers this point immaterial. As previously explained, the determination of price, even if carried out by CBNA or facilitated through its infrastructure, is not sufficient in itself to bring the service within the scope of the exemption. The legal test requires a change in the legal relationship between the parties, not merely involvement in price setting.[174]Accordingly, the Tribunal finds no error of law in the FTT’s reasoning or conclusions on this point. The findings challenged by CBNA were supported by the evidence and were properly open to the FTT to make. The appeal on this ground is therefore dismissed.

CBNA’s challenge to application of principles to facts

[175]Although not formally raised as a ground of appeal, CBNA’s skeleton and oral arguments included a challenge to the application of the relevant legal principles to the facts as found by the FTT. CBNA contended that, had the correct principles been properly applied, several activities which the FTT had rejected as exempt should have been found to fall within the exemption. Specifically, CBNA argued that these activities constituted specific and essential functions of the transactions, were intrinsically connected to them, and had a substantive impact on the legal rights and obligations of SPLC and its clients.[176]We do not accept that the FTT misapplied the relevant legal principles. The FTT correctly identified the core requirement: that for a service to be exempt, it must effect a change in the legal and financial relationship between the parties to a transaction in securities. The additional descriptors relied upon by CBNA—such as “specific and essential” or “intrinsically connected” or “capable of having an impact on the substance [of the legal relationship]”—do not constitute separate legal tests or detract from the central requirement of legal effect. To the extent CBNA’s case on misapplication relies on these then those were not principles the FTT was required to apply. We will address however CBNA’s challenge insofar as it concerns the FTT’s application of the correct test (the need for the service to alter the legal and financial relationship).[177]CBNA’s submissions in relation to its role in cash transactions focused on two aspects: first, the determination and agreement of economic terms, and second, the performance and implementation of the transaction. However, we agree with the FTT that providing pricing tools, models, and risk parameters, while operationally important, does not itself alter the legal relationship between the parties. Similarly, CBNA’s role in facilitating settlement through CREST, resolving breaks, and performing netting calculations, while necessary to the completion of the transaction, does not amount to executing the transaction in the legal sense required.[178]In relation to derivatives, CBNA described a more complex “lifecycle”, including pricing, delta hedging, allocation, collateral and payment management, corporate actions, and termination processes such as novation and trade compression. While these functions may be integral to the administration and risk management of derivative positions, the particular activities carried out by CBNA did not, in our view, in themselves, create, alter, or extinguish legal rights as between SPLC and its clients. The activities such as allocation and rebooking were essentially affirmation or administrative processes. Collateral and payment management, including dispute resolution and netting, did not in themselves constitute execution of the securities transaction. Although, on the face of it, one might expect that something termed an execution algorithm would constitute execution, it was, in essence, the provision of infrastructure which enabled giving the instructions for transactions between others to take place. The use of automated systems or execution algorithms did not change the legal character of the transaction. That remained one entered into by SPLC and its counterparties whether that was with clients or with counterparties to a hedging transaction (which would in its own right constitute a transaction in securities). The evidence does not support the conclusion that CBNA performs the act of execution; rather, it facilitated and supported transactions executed by others. Thus, in contrast to the activity of SPLC and those counterparties, which resulted in changes to the legal relationship between them when the transaction was carried out, the support and facilitation provided by CBNA did not.[179]We therefore disagree the FTT erred in its legal approach or in applying that to reach its conclusions. CBNA’s role, while operationally significant and technologically sophisticated, does not meet the legal test for exemption. The test is not whether a party is involved or integral to the execution process, but whether the services it provides as a distinct whole performs the functional act of executing a transaction in securities.[180]Accordingly we agree with Mr Beal’s core submission that the provision of a technological trading infrastructure that helps SPLC to build and fulfil its transactions with external clients is not the same as functionally executing the transactions. There was nothing in the FTT’s findings (which we have found were not susceptible to challenge) which suggested that test was met.

Conclusion on exemption issue

[181]In conclusion if we were wrong in our conclusion on the single/multiple supply issue and there were multiple separate supplies of Business Delivery services or a composite supply of Business Delivery service then we would have rejected CBNA’s case that the FTT had erred in reaching its conclusion that such supplies were not exempt. We would have reached that same conclusion as the FTT, had it become necessary, on the basis that none of the services that CBNA provided to SPLC amounted to transactions in securities or negotiation in securities within the scope of the relevant exemption.

The classification issue

[182]Given our conclusion that even if there had been multiple supplies the FTT had not erred in its conclusion that those were not exempt we will deal with this issue as briefly as possible too.[183]In terms of the relevant legal principles there is no dispute that relevant principles summarised in HMRC v Gray & Farrar International LLP [2023] EWCA Civ 121where the Court of Appeal confirmed that “the predominant element test is the primary test and endorsed the following ‘hierarchy’:
“(1) The Mesto predominance test should be the primary test to be applied in characterising a supply for VAT purposes. (2) The principal/ancillary test is an available, though not the primary, test. It is only capable of being applied in cases where it is possible to identify a principal element to which all the other elements are minor or ancillary. In cases where it can apply, it is likely to yield the same result as the predominance test. (3) The “overarching” test is not clearly established in the ECJ jurisprudence, but as a consideration the point should at least be taken into account in deciding averments of predominance in relation to individual elements, and may well be a useful test in its own right.”
[184]It is argued the FTT confused the concept of “predominance” with the concept of “principal” when it stated at [302] that: “it is impossible to identify any particular element as principal”.[185]We reject this argument. It is clear from the preceding paragraphs (setting predominance as the relevant test by reference to Gray & Farrar, Target Group Ltd v HMRC [2018] UKFTT 226 (TC), and Target Group Ltd v HMRC (2019 UKUT 340 (TCC)– all of which referred to predominance) and the subsequent reference in [303] to “in similar circumstances where it not possible to identify a predominant element” that the FTT had in mind the term “predominant”. Although it used the term “principal” that plainly did not mean principal in the sense of principal/ ancillary (which it had earlier recorded as not being the primary test). There was therefore no error in the FTT’s rejection of the ground on the basis of any confusion between the two tests.[186]Finally we should mention that before the FTT and before us HMRC had raised an issue that the appeal should have been dismissed on the basis of what they described a threshold question of whether CBNA had identified any specific exempt supplies and for what consideration those supplies were given (“the identification issue”). The FTT held against HMRC on the that issue (at [251] to [256]). HMRC’s Response argued the FTT was wrong to do so. Given we have already decided to uphold the FTT’s decision dismissing CBNA’s appeal on the basis there was no error in the FTT holding there was a single taxable supply we do not consider it necessary to address this further argument for why the appeal should be dismissed.

Conclusion

[187]CBNA’s appeal is dismissed. JUDGE SWAMI RAGHAVAN JUDGE PHYLLIS RAMSHAW Release date: 17 June 2025