HMRC v National Exhibition Centre Ltd., [2016] BVC 19 (ECJ (8th Chamber))

NEC sold tickets on behalf of third parties to various trade, sporting and concert events held by them at the National Exhibition Centre. Where the customers paid by credit card, NEC increased the ticket prices by about 10%, and retained this amount as a booking fee.

The U.K. Upper Tribunal (Tax and Chancery Chamber) referred a question to the European Court of Justice as to the principles to be applied in determining whether the card processing services of NEC came within Art. 13B(d)(3) of the Sixth Directive, which directed the exemption of “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments… .”

Before answering this question, the Court questioned the implicit assumption in the question that the NEC booking fees were consideration for a separate supply, stating (at paras. 18, 23):

The Court, however, has already held that the additional charges invoiced by a service provider to its customers, where the latter pay for those services by credit card, debit card, cheque or cash over the counter at a bank or authorised payment agent acting on behalf of that service provider, do not constitute consideration for a supply of services distinct and independent from the principal supply of services in respect of which that payment was made (see…Everything Everywhere...Case C‑276/09…).

[I]t is for the referring court to ascertain whether, in the main proceedings, the NEC’s card processing service must be considered for VAT purposes to be a service which is ancillary to the sale of the tickets concerned or as a service ancillary to another principal service which is provided by the NEC to the purchasers of those tickets, which could be the reservation or the delivery of tickets for shows or other events and, therefore, forming with that principal service a single service with the result that that service must share the tax treatment of that principal service (see…Card Protection Plan…Case C‑349/96…[and] Wojskowa Agencja Mieszkaniowa…Case C-42/14…).

NEC sold tickets on behalf of third parties to various trade, sporting and concert events held by them at the National Exhibition Centre. Where the customers paid by credit card, NEC increased the ticket prices by about 10%, and retained this amount as a booking fee.

The U.K. Upper Tribunal (Tax and Chancery Chamber) referred questions to the European Court of Justice respecting the principles to apply in determining whether the card processing services of NEC came within Art. 13B(d)(3) of the Sixth Directive, which directed the exemption of “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments… .”

The card processing services of NEC (referred to as the “service provider”) were described by the Court (at para. 26):

[C]ard processing service consists, first, of the service provider obtaining from the buyer the details of the debit or credit card which that buyer wishes to use and transmitting those details to its merchant acquirer bank which then transmits them to the card issuer. Next, it consists - when the card issuer, after receipt of those details, has confirmed to the merchant acquirer bank, by transmitting to the latter an authorisation code, the validity of the card and the availability of the necessary funds - of the receipt of that code by the provider via its merchant acquirer bank, which authorises it to make the sale. Lastly, it consists of the retransmission by that provider to its merchant acquirer bank, at the end of the day, of a settlement file summarising all the sales made during the day and including the relevant details of the payment cards used, including the authorisation codes, which is forwarded by the merchant acquirer bank to the various card issuers, who then make the payments or transfers to that merchant acquirer bank, which transfers the relevant funds to the account of the service provider.

The Court questioned the implicit assumption in the question that the NEC booking fees were consideration for a separate supply. The Court then found that the card processing services of NEC did not come within the exemption, stating (at paras. 42-43, 48):

[T]he provider of such a service neither debits or credits directly the accounts concerned, nor intervenes by way of accounting entries, nor even orders such a debit or credit since it is the buyer who, by using his payment card for a purchase, decides that his account will be debited in favour of a third party’s account.

Furthermore…the settlement files presented by a services supplier to its merchant acquirer bank are nothing more than a demand for payment in electronic form. The forwarding of such a file at the end of the day is, consequently, only to inform the relevant payment system that a previously authorised sale has indeed taken place. It cannot, therefore, be regarded as executing the payment or transfer concerned or as having the effect of fulfilling the specific, essential functions.

A card processing service, such as that at issue…, thus consisting, in essence, of an exchange of information between a trader and its merchant acquirer bank with a view to receiving payment for goods or services offered for sale, cannot fall within the exemption… .