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American Express Services Europe v HMRC

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In American Express Services Europe v HMRC [2019] UKFTT 548 (28 August 2019), the FTT found that the taxpayer was making exempt supplies of services to a company located outside the EU and could therefore recover VAT.

AESEL is a card issuer, ‘an entity that issues American Express cards to persons (“cardmembers”) who use them as a form of payment for goods and services, subject to terms and conditions of use’. In that role, AESEL made supplies of payment services. There was no dispute that AESEL supplied the payment services to another member of the Amex Group but the parties disagreed about which one of two other members of the Amex Group received the services.

AESEL considered that it supplied the payment services to TRSCo, which was established outside the EU so that it could claim input tax. HMRC’s view was that AESEL made exempt supplies of payment services to AEPSL, which was established in the EU so that no input tax recovery was possible.

HMRC relied primarily on the phrase ‘on behalf of the acquirer’ in the Card Issuer Agreement to argue that AESEL should be regarded not as making supplies of payment services to TRSCo but as making them to AEPSL. Disagreeing with HMRC’s interpretation, the tribunal found that Article 7.01 of the Card Issuer Agreement described the fulfilment of a service that TRSCo provided to AEPSL; the service of processing and presenting charges. The FTT therefore rejected the notion that TRSCo was a mere conduit for the provision of the payment services by AESEL to AEPSL.

The FTT then had to decide whether the contractual position corresponded with the economic reality. It found that the disparity in levels of consideration obtained by AESEL and TRSCo did not necessarily mean that the commercial reality deviated from the contractual position. Similarly, the FTT did not accept that in order to provide a payment service to TRSCo, AESEL must make a payment to TRSCo. The settlement of amounts due, by making accounting entries to change the inter-company balances, were transactions concerning payments and transfers for the purposes of the Principal VAT Directive Art 135(1)(d).

Read the decision.

Why it matters: The FTT opened the decision by observing: ‘There is no guidance in the Principal VAT Directive or VATA 1994 on how to determine who is the recipient of a supply. This may seem surprising when the issue of whether goods or services have been supplied to a particular person (or a person with particular characteristics) can be fundamental to the correct functioning of the VAT system.’ As a result, this case follows a long line of cases and re-affirms the principle that a two-stage process is required; ‘it starts with consideration of the contractual position and then looks at whether that is consistent with the economic and commercial reality of the transactions.’ 

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Issue: 1457
Categories: Cases