The Scottish Court of Session held that booking fees charged by the taxpayer, as agent for independent entertainment promoters, to customers who paid by credit card or debit card were the consideration for exempt supplies within art. 13(B)(d)(3) of Council Directive 77/388 (‘the sixth directive’) for VAT purposes.

Facts

The taxpayer owned and operated premises in Glasgow known as the Scottish Exhibition and Conference Centre (‘SECC’). One of its trading divisions acted as a ticket selling agent for events held at the SECC. A customer who paid for a ticket by credit card or by debit card was charged a booking fee in addition to the price of the ticket. The taxpayer attracted a high proportion of regular patrons in its audiences and sold tickets as the agent of the promoter. The taxpayer was not paid by the promoter for selling tickets. The ticket sale agreement between the taxpayer and the promoter stated that the parties had entered into the hire agreement and that the promoter wished to appoint the taxpayer as the promoter's agent to sell tickets for the event on the promoter's behalf, on the terms and conditions set out in the ticket sale agreement.

The taxpayer claimed that the booking fee was in respect of an exempt supply for VAT purposes. Customs rejected that claim. On appeal, the VAT tribunal found as a fact that the booking fee was charged to a customer only when payment was made by credit card or debit card. On that basis, the tribunal were invited to reach the conclusion that the ten per cent booking fee was for the facility of paying by credit card or debit card. That was the only service which attracted the payment of the booking fee, and no booking fee was charged for payment by any other method.

However the tribunal reached a contrary conclusion on the basis that the reason for the booking service was the taxpayer's eagerness to promote itself as a popular venue and anxiety to develop a ‘customer loyalty’ and ‘customer base’ to better enable it to sell to promoters space for concerts and other entertainment. They noted that the cost of the service as represented by the fee exceeded substantially the credit card charge on the transaction. It followed that the range of services provided by the taxpayer at the box office and by telephone extended well beyond its role as agent of the promoter which was (simply) for the sale of tickets. Those services were undertaken by the taxpayer as a principal and in its own interests. In the present case there was a booking service offering extensive customer support with a view to promoting the taxpayer's business and with the credit card facility representing an ancillary aspect enhancing the main service ([2005] BVC 2,529). The taxpayer appealed to the Court of Session.

Issues

Whether, on a proper view of the evidence, the booking fee was charged for the facility of paying by credit card or by debit card, and not for some other facility; and, if so, whether the booking fee fell within the scope of the exemption from VAT provided by VATA 1994, Sch. 9, Grp. 5, item 5.

Decision

The Court of Session (Inner House, Extra Division) (Lords Nimmo Smith, Kingarth and Clarke) (allowing the appeal) said that there was some indication that the tribunal had confused the booking fee charged by the taxpayer to a customer with the booking fee the taxpayer was entitled to charge, but did not in practice charge, to the promoter of the ticket sale agreement. The tribunal took into account the evidence about the giving of certain information by telephone operators, without recognising that there was no evidence that the giving of any such information constituted any part of any supply made for a consideration by the taxpayer.

It had been held in Staatssecretaris van Financien v Cooperatieve Aardappelenbewaarplaats GA (Case C-154/80) [1981] ECR 445, at para. 12, that there had to be a direct link between the consideration and the supply. The tribunal erroneously took into account the fact that the cost of the service exceeded the booking charge on the transaction. The use made by the taxpayer of the proceeds of the fee charged was irrelevant to its proper characterisation. The tribunal also erred by taking into account the role of the taxpayer as agent of the promoter. Supplies consisting of sales of tickets were made not by the taxpayer, but by the promoter through the taxpayer as agent. Those supplies were therefore irrelevant in the characterisation of the nature of the supply made by the taxpayer in its own right.

Most importantly the tribunal erred by failing to take into account the undisputed evidence that a fee was charged when, and only when, a booking was made by credit card or debit card. The tribunal failed to take into account the fact that a booking fee would be incurred by a customer paying by credit card in person at the box office, and the fact that no fee would be incurred by a telephone booking in which the customer paid by cheque rather than by credit card. In those circumstances, the tribunal based their decision upon matters which they ought not to have taken into account and disregarded matters which they ought to have taken into account. The only conclusion reasonably open to the tribunal was that the booking fee charged by the taxpayer was charged in consideration of the facility of booking by credit card or debit card.

As regards the second question, both in fact and in law, the taxpayer provided two separate services to customers who paid for tickets by credit card or debit card. The taxpayer acted as agent for the promoter in selling the ticket, and as principal in charging the booking fee for taking the steps necessary to effect payment by credit card or debit card. While the customer might not be aware of the detail by which that was effected, he or she was aware that there were two charges, one for the price of the ticket and the other for the facility of payment by credit card or debit card. On that analysis, it was impossible to describe the latter as ancillary to the former. On the approach laid down in Card Protection Plan Ltd v C & E Commrs (Case C-349/96) [1999] BTC 5,121; [1999] ECR I-973, the essential features of the transaction constituted two distinct principal services from an economic point of view, and to treat the transaction as such did not constitute the artificial splitting of a single service.

While there was less detailed information in the tribunal's findings in fact in the present case about the means by which information was transmitted by the taxpayer than in the case of Bookit Ltd v R & C Commrs [2005] BTC 5,581 (affirmed by the Court of Appeal at [2006] EWCA Civ 550), there was no reason to think that the mechanism in its main features was any different in the two cases. The facility for payment by credit card or debit card effected a change in the legal and financial situation, whereby money was transferred from the customer to the taxpayer, within the meaning of Sparekassernes Datacenter (SDC) v Skatteministeriet (Case C-2/95) [1997] BTC 5,395; [1997] ECR I-3017, as further explained in C & E Commrs v FDR Ltd [2000] BTC 5,277.

The four components referred to by Chadwick LJ at para. 35 in Bookit appeared to be present in this case, mutatis mutandis. There could be no doubt that, in requesting and accepting the taxpayer's services, the customer contemplated that some payment would be made which would enable him or her to obtain the tickets which were requested, and intended that the taxpayer would arrange for that. In some respects, the present case was a fortiori of Bookit, because the taxpayer and the promoter were not part of the same corporate group and the relationship between them was solely contractual. As a result of the transaction between the taxpayer and the customer there was a change in the legal and financial situation existing between them. In any event, even if that was wrong, the actions of the taxpayer constituted negotiation, as that concept was explained in C & E Commrs v CSC Financial Service Ltd (Case C-235/00) [2002] BTC 5,141; [2001] ECR I-10237. The appeal accordingly succeeded.

Court of Session (Inner House, Extra Division). Judgment delivered
14 July 2006.