The issue was whether services provided to the appellant by a number of agents in relation to sums said to be due to the appellant were exempt supplies or were excluded from exemption by being debt collection.

The appellant, a major financial institution, provided credit facilities to customers by way of loans, credit cards and overdrafts. Where arrears occurred on these facilities customers had to make immediate payment in full. In 90 per cent of cases, the appellant's in-house recovery department dealt with the matter, but in the remaining ten per cent of cases, the appellant referred the case to an agent which provided debt negotiation services. These services commenced with the agent writing to the customer inviting him or her to contact the agent by telephone. If no call was received, the agent would initiate telephone contact. The agent had the powers to negotiate and compromise in respect of the outstanding amount, subject to the authority and agreement of the appellant. Commission was paid to the agent on the basis of sums successfully recovered. The appellant contended that the services provided by the agents constituted the negotiation of credit and/or the granting of credit, both of which were exempt under art. 13(B)(d)(1) of the sixth directive. The appellant submitted that although the agents were not financial institutions, in varying the contract and departing from the absolute legal position of the parties they granted credit on behalf of the appellant within art. 13(B)(d)(1) and item 2 of Grp. 5 of Sch. 9 to the Value Added Tax Act 1994. In applying the exclusion from exemption of debt collection, the terms debt and credit were merely opposite sides of the same coin, so that negotiation of debts and negotiation of credit both fell within the exemption. The appellant submitted further that the agents supplied intermediary services which were exempt within item 5 of Grp. 5.

The commissioners submitted that the bundle of services provided by the agents to the appellant comprised a clearly circumscribed series of transactions performed as an essential function of debt collection. The aim of the services was to maximise the recovery of debts for the appellant. The agent acted for the appellant and not for the debtor, so if a benefit accrued to a debtor it was incidental to the principal aim of the services, which was the collection of debts. The commissioners maintained that a debt management agent provided a principal service of debt negotiation because his dominant aim, for which he received payment from the debtor, was to mediate between debtor and creditor and bring them together with a view to improving the debtor's legal or financial position in respect of the debt, typically by renegotiating the terms of the loan. The agent, in this case, worked for the creditor and, even if there was an act of mediation, the service was still taxable because the aim was to maximise recovery under the principal service of debt collection. Furthermore, added the commissioners, the right granted to the agents to extend payment dates amounted to a grant of credit that would fall to be taxed as an intrinsic element of debt collection, since it was the means by which payment of the debt was enforced. In any event, it was ancillary to the principal service because it was a means to better recover the debt. With regard to the appellant's claim that the agents were providing intermediary services, the commissioners submitted that the agents did not have as their aim the bringing together of debtor and creditor for the supply of financial services. The aim was the collection of debts. The tribunal dismissed the company's appeal.

1. The dominant purpose of the entire economic arrangement was the recovery of money due to the appellant.
2. Negotiation involved in the recovery of money was not an aim in itself, but was ancillary to the dominant purpose of debt recovery.
3. The agents' services did not fall to be regarded as intermediary services within item 5, since the agents did not act in an intermediary capacity in relation to both debtor and creditor.
4. The service supplied by the agents was a single supply of debt recovery and was not to be regarded as the granting of credit.

No. 20,118