On May 26, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑607/14 Bookit Ltd versus Commissioners for Her Majesty’s Revenue and Customs (ECLI:EU:C:2016:355).
Article 135(1)(d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exemption from value added tax provided for therein for transactions concerning payments and transfers is not applicable to a ‘card handling’ service, such as that at issue in the main proceedings, supplied by a taxable person, the provider of that service, where an individual purchases, via that service provider, a cinema ticket which the service provider sells for and on behalf of another entity, and which the individual pays for by debit card or by credit card.
The dispute in the main proceedings and the questions referred for a preliminary ruling
· Bookit is a company wholly owned by Odeon Cinemas Holding Limited (‘Odeon’), which owns and operates a chain of cinemas in the United Kingdom. Bookit’s stated business activity consists of processing debit and credit card payments (‘card handling’) for customers of the Odeon group of companies. Bookit also operates a call centre on Odeon’s behalf. Bookit’s entire income is derived from transactions involving Odeon group companies and from the Odeon cinema customers.
· By a decision of 24 December 2009 the tax authority determined that supplies made by Bookit, in consideration of payments described to customers buying Odeon cinema tickets as ‘card handling fees’, are not supplies of services that are exempt within Group 5 of Schedule 9 to VATA 1994. Bookit brought an appeal against that decision before the First-tier Tribunal (Tax Chamber).
· The referring court states that Odeon cinema ticket sales are made either at counters and automatic ticket machines at cinemas, or by telephone, via a telephone call centre, or via the Internet.
· Counter sales are made by Odeon employees. With respect to those sales, as for those made at automatic ticket machines at cinemas, Bookit provides card handling services to Odeon, but charges neither Odeon nor customers any fee for those services. Telephone and Internet sales are made by Bookit, acting as agent for Odeon. With respect to those sales, the purchase of tickets by debit card or credit card involves the payment, by the customer, of the price of the ticket and also the card handling fee. In the relevant periods, the fee varied between GBP 0.65 and 0.75 (approximately EUR 0.82 and 0.95) per transaction.
· The referring court states that, throughout the relevant period, the debit card and credit card payments received by Bookit from customers buying tickets for the Odeon cinemas were processed by a bank known as the ‘merchant acquirer’, under a merchant services agreement. That agreement provided that the merchant acquirer should credit Bookit’s account with the total sum of the transactions in respect of which the relevant card transaction data was presented to it. The agreement also provided that Bookit or, as applicable, Odeon was obliged, first, to obtain, from the merchant acquirer, an authorisation code — issued by the bank of the card holder, that bank being the ‘card issuer’, which signifies, in essence, that the card is valid and that there are funds in the account — before making any sale and, second, to ensure that that code was included in a file, known as ‘the settlement file’, which includes the card transaction data, and which has to be transmitted to the merchant acquirer at the end of the day with a view to completing the payments.
· Odeon and Bookit also entered into a separate services contract with DataCash Limited, under which DataCash was to provide ‘standard bank card services’. Those services included obtaining authorisation codes for and on behalf of Bookit, by lodging the required authorisation requests with the merchant acquirer and receiving the authorisation responses, and storing the authorisations in a batch file, recording whether the sales were made by Odeon in the cinemas or by Bookit remotely, for the purposes of settlement with the merchant acquirer.
· The referring court explains that, in practice, the purchase of a cinema ticket by telephone or via the Internet includes the following stages. First, the customer provides Bookit with the relevant data concerning the debit card or the credit card that he wants to use, such as the name and address of the cardholder, the card number and the security number on the back of the card, data which Bookit sends, via DataCash, to the merchant acquirer. The latter transmits the data to the card issuer which, if the data is accepted, ring fences the money and transmits an authorisation code to the merchant acquirer. The merchant acquirer, via DataCash, transmits that code to Bookit which, on receipt, examines whether the requested cinema seats are still available. If so, the tickets are allocated to the customer and the transaction is completed by Bookit, which receives from Odeon confirmation of the reservation stating that an amount in consideration for the ordered tickets, together with an amount payable to Bookit as a booking fee, has been or will be charged to the customer’s card.
· Next, as part of each cinema’s ‘end of day’ process, Bookit transmits to DataCash the payment information that it has collated, in the form of settlement files that include, for each transaction, the card payment data, including the card issuer’s authorisation code; DataCash then sends to the merchant acquirer a batch file comprising all the transactions entered into in the course of the day, for transmission to the various card issuers, which triggers payment by the card issuers to the merchant acquirer. The merchant acquirer then credits Bookit’s bank account with the funds concerned. Finally, Bookit transfers to Odeon the ticket sale revenue and retains the card handling fees.
· The referring court states that Bookit’s role thus involves, in part, a supply of a service as an agent of Odeon in selling tickets and, in part, the supply to the purchasers of those tickets of card handling services, consisting in obtaining card information from the customer, transmitting that information to the merchant acquirer, obtaining an authorisation code from the merchant acquirer and retransmitting the card information, including the authorisation code, to the merchant acquirer as part of the settlement process.
· The referring court adds, first, that, without the settlement files, the merchant acquirer would not know whether transactions had been completed. Second, Bookit would not be able to process card payments without the services of a merchant acquirer, since it cannot provide the card data directly to the card issuers in order to obtain authorisation codes. Third, Bookit also requires the services of DataCash so that the card data is formatted into a form recognised by the payment system. That court states that the parties to the dispute before it accept that the intervention of DataCash has no effect on the nature of the service provided by Bookit. Fourth, that court observes that the relationship of Odeon, Bookit and their customers is described on Odeon’s website and is of the opinion that, throughout the period concerned, those customers knew that they were entering into a separate agreement with Bookit for the supply of card handling services, in consideration of payment of a fee.
· Before the referring court, Bookit argues that the card handling service that it provides to the purchasers of Odeon cinema tickets constitutes a supply of services that is exempted under Group 5, item 1, of Schedule 9 to VATA 1994 and Article 135(1)(d) of the VAT Directive, since the effect of the transmission to the merchant acquirer of the card data, including authorisation codes, is that funds are transferred to Bookit’s account with the merchant acquirer.
· The tax authority, on the other hand, contends that Bookit is not engaged at any time in transferring funds on behalf of Odeon’s customers within the meaning of the Court’s case-law, since that transfer is carried out by the merchant acquirer in conjunction with the card issuers. The services provided by Bookit are therefore subject to standard rate VAT.
· The referring court states that, in common with other courts in the United Kingdom, it is experiencing difficulty in determining what kinds of activity are covered by the exemption laid down in Article 135(1)(d) of the VAT Directive.
· In those circumstances, the First-tier Tribunal (Tax Chamber) decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:
1) With regard to the exemption from VAT in Article 135(l)(d) of [the VAT Directive] as interpreted by the Court of Justice in the judgment of 5 June 1997 in SDC (C‑2/95, EU:C:1997:278), what are the relevant principles to be applied in determining whether or not a “debit and credit card handling service” (such as the service that is supplied in this case) has “the effect of transferring funds and entail[s] changes in the legal and financial situation” within the meaning of paragraph 66 of that judgment?
2) As a matter of principle, what factors distinguish (a) a service which consists in the provision of financial information without which a payment would not be made but which do not fall within the exemption [as in the judgment of 28 July 2011, Nordea Pankki Suomi(C‑350/10, EU:C:2011:532)], from (b) a data handling service which functionally has the effect of transferring funds and which the Court of Justice has identified as therefore being capable of falling within the exemption [as in the judgment of 5 June 1997 in SDC(C‑2/95, EU:C:1997:278) in paragraph 66]?
3) In particular, and in the context of debit and credit card handling services:
a) Does the exemption apply to such services which result in a transfer of funds but which do not include the task of making a debit to one account and a corresponding credit to another account?
b) Does entitlement to the exemption depend on whether the service provider itself obtains authorisation codes directly from the cardholder’s bank, or alternatively obtains those codes via its merchant acquirer bank?
The CJEU judged as follows:
Article 135(1)(d) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exemption from value added tax provided for therein for transactions concerning payments and transfers is not applicable to a ‘card handling’ service, such as that at issue in the main proceedings, supplied by a taxable person, the provider of that service, where an individual purchases, via that service provider, a cinema ticket which the service provider sells for and on behalf of another entity, and which the individual pays for by debit card or by credit card.
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