The Court of Appeal upheld a decision of the High Court ([2005] BTC 5,581) that the taxpayer company, when making advance bookings of cinema tickets for customers in returns for a 50p fee, was making a supply of card-handling services which qualified for exemption from VAT as a ‘transaction concerning payments, transfers’ within art. 13(B)(d)(3) of Directive 77/388 (‘the sixth directive’).

Facts

Odeon operated a chain of cinemas in the UK. The taxpayer company was a subsidiary which operated the advance booking system on behalf of Odeon. The taxpayer made a 50p charge to customers for card handling services. The services involved the transmission of card transaction data to Girobank which credited the taxpayer's account in accordance with a merchant services agreement. The taxpayer accounted to Odeon for the price of tickets and retained the fee out of which it paid Girobank. The taxpayer claimed that its services provided in return for the fee were exempt under item 5 of VATA 1994, Grp. 5 of Sch. 9. Customs argued that the taxpayer's services were not simply those of card handling, but were standard-rated booking services. The VAT tribunal dismissed the taxpayer's appeal, holding that the taxpayer was making a single taxable supply of booking services ([2004] BVC 2,229;

Decision No. 18,626) and was not performing intermediary services within VATA 1994, Sch. 9, Grp. 5, item 5 ([2005] BVC 4,044; Decision No. 18,856).

The High Court allowed the taxpayer's appeal on the basis that the services provided by the taxpayer to the customer constituted ‘transactions concerning payments, transfers’ within art. 13(B)(d)(3).

The Revenue appealed to the Court of Appeal arguing that the actual components of the supply made by the taxpayer to the customer were limited to the receipt and transmission of information; and that, when properly identified by reference to its components, the supply did not fall within the exemption allowed by art. 13(B)(d)(3).

Issue

Whether the card handling services were within the exemption.

Decision

Chadwick LJ (Sedley and Arden L JJ agreeing) (dismissing the appeal) said that it was clear that the tribunal found that the supply by the taxpayer to the customer included the following components:

1. obtaining the card information with the necessary security information from the customer;
2. transmitting that information to the card issuers;
3. receiving the authorisation codes from the card issuers; and
4. transmitting the card information with the necessary security information and the card issuers’ authorisation codes to Girobank.

It was a necessary incident of the supply of services having the fourth of the components which the tribunal had identified, that the price of the ticket was transferred to the taxpayer's account with Girobank in accordance with the merchant services agreement.

To attract the exemption the service supplied had to have the effect of transferring funds and to entail changes in the legal and financial situation. It was a question for the national court in each case whether the services supplied by the data-handling agency were restricted to a mere physical or technical supply of information or whether the services extended to specific, essential aspects of the transaction (Sparekassernes Datacenter v Skatteministeriet (Case C-2/95) [1997] BTC 5,395; [1997] ECR I-3017 applied).

In the present case the exemption provided for in art. 13(B)(d)(3) applied on the basis that the fourth component of the service supplied by the taxpayer to the customer had the effect that funds were transferred to the taxpayer's account with Girobank.

Court of Appeal (Civil Division). Judgment delivered 11 May 2006.