Flashback on ECJ Cases – C-276/09 (Everything Everywhere) – Additional fees charged when using certain methods of payment for mobile telephony services

On December 2, 2010, the ECJ issued its decision in the case C-276/09 (Everything Everywhere).

Context: Sixth VAT Directive – Exemption – Article 13B(d)(1) and (3) – Negotiation of credit – Transactions concerning payments and transfers – Existence of two separate supplies of services or of a single supply – Additional charges invoiced where certain methods of payment are used for mobile telephone services

Article in the EU VAT Directive

Articles 13B(d)(1) and (3) of the Sixth VAT Directive. Articles 135(1)(b) and 135(1)(d) of the EU VAT Directive 2006/112/EC.

Article 135 (Exemption)
1. Member States shall exempt the following transactions:
(b) the granting and the negotiation of credit and the management of credit by the person granting it;
(d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

Facts

Everything Everywhere is a telecommunications company which provides mobile telephone services. In order to receive those services, customers may pay in advance, by topping up the credit balance on their customer account, or at the end of a billing period. In the latter case Everything Everywhere sends its customers a monthly bill, which they may settle by various methods. Customers have a choice of payment:
- – by Direct Debit;
- – by a transfer through the Bankers’ Automated Clearing System (BACS) (‘BACS transfer’);
- – by debit or credit card, via the telephone or internet;
- – via a third party payment agent, for example, at a Post Office counter;
- – by cheque sent by mail, or
- – over the counter at a branch of Everything Everywhere’s bank (HSBC Bank Plc) or of another other bank, for credit to Everything Everywhere’s bank account.
Where a customer pays his bill by Direct Debit or BACS transfer Everything Everywhere imposes no additional charge on him.
A Direct Debit payment requires a Direct Debit mandate, that is to say, a standing instruction given by the customer to his bank to make payments at the request of Everything Everywhere. On the basis of that mandate, Everything Everywhere will endeavour to obtain from the bank concerned a transfer of the amount payable by the customer via BACS each time a payment falls due. A BACS transfer is initiated each time by the customer instructing his bank to transfer a particular sum of money from his account to Everything Everywhere’s account.
A payment made by one of the other payment methods listed in paragraph 7 above, however, will give rise the following month to an additional charge of GBP 3, described by Everything Everywhere as a ‘separate payment handling charge’ (‘the SPHC’).
Thus, the SPHC is invoiced to a customer paying by debit or credit card who initiates, by telephone or by internet, an electronic process resulting in the sum payable being transferred to Everything Everywhere’s account by the bank which issued the card. The same applies where a cash payment is made over the counter at a bank or authorised payment agent (in particular the Post Office) with which Everything Everywhere has entered into an agreement whereby such payments are received on its behalf. Everything Everywhere also invoices the SPHC to customers paying for mobile telephone services by cheque, either by handing the cheque over the counter at a bank of their choice or by sending a cheque to Everything Everywhere’s bank, using an envelope pre-addressed to that bank.
Provision for the SPHC to be applied is made in Everything Everywhere’s Terms and Conditions. It is mentioned in the brochures in which Everything Everywhere sets out its tariffs, and also on its website. About 28% of Everything Everywhere’s customers choose to pay other than by Direct Debit or BACS transfer and thus incur the SPHC.
The SPHC does not apply either to customers who pay in advance for all their mobile telephone services by topping up the credit balance on their customer account or to business customers.
Everything Everywhere contends that the SPHC is to be regarded as consideration for a payment handling service effected for consideration and that it is therefore exempt from VAT under Article 13B(d) of the Sixth Directive. In August 2005, Everything Everywhere submitted a claim for a sum of GBP 4 063 228.08, which represented overpaid output tax for the period August 2003 to July 2005 in respect of the SPHC. The Commissioners refused that claim. Everything Everywhere appealed against that refusal to the VAT and Duties Tribunal, which upheld the Commissioners’ decision and found that the SPHC was subject to VAT.
Everything Everywhere appealed against the decision of the VAT and Duties Tribunal to the referring court. The latter considers that the dispute relates in essence to whether the SPHC is consideration for a supply of services which is separate from the supply of telecommunications services and which falls within the exemption provided in Article 13B(d)(1) or (3) of the Sixth Directive.
The referring court observes in particular that the parties to the main proceedings have recognised that Article 13B(d)(3) of the Sixth Directive has previously been interpreted by the Court of Justice in its judgment in Case C‑2/95 SDC [1997] ECR I‑3017, in particular in paragraphs 53 and 66 of that judgment, in which the Court held that for ‘a transaction concerning transfers’, the services provided must have the effect of transferring funds and entail changes in the legal and financial situation. The parties differ, however, as to what is meant by those words.

Questions

(1) What are the characteristics of an exempt service that has “the effect of transferring funds and entail[s] changes in the legal and financial situation”? In particular:
- (a) Is the exemption applicable to services which would not otherwise have to be performed by any of the financial institutions which (i) make a debit to one account, (ii) make a corresponding credit to another account, or (iii) perform an intervening task between (i) or (ii)?
- (b) Is the exemption applicable to services which do not include the carrying out of tasks of making a debit to one account and a corresponding credit to another account, but which may, where a transfer of funds results, be seen in retrospect as having been the cause of that transfer?
(2) Does the exemption in Article 13B(d)(3) of the Sixth Directive for “transactions … concerning … payments [or] transfers” apply to a service of obtaining and processing payments by credit and debit cards, such as those performed by the taxpayer in the present case? In particular, where the transmission of settlement files at the end of each day by the taxpayer has the effect of automatically causing the customer’s account to be debited and the taxpayer’s account to be credited, will those services fall within the scope of Article 13B(d)(3) [of the Sixth Directive]?
(3) Does the answer to Question 2 depend on whether the taxpayer itself obtains authorisation codes for onward transmission or obtains those codes through the agency of its acquiring bank?
(4) Does the exemption in Article 13B(d)(1) of the Sixth Directive for “the negotiation of credit” apply to services such as those offered by the taxpayer in the present case in relation to credit card payments, whereby as a result of those services the customer’s credit card account is debited with further amounts of credit?
(5) Does the exemption for “transactions … concerning … payments [or] transfers” apply to services of accepting and processing payments made using third party agents, such as those offered by the taxpayer through the Post Office and PayPoint in the present case?
(6) Does the exemption for “transactions … concerning … payments [or] transfers” apply to services of obtaining and processing payments made by cheque sent to the taxpayer or his agent, which payments have to be processed by the taxpayer and its bank?
(7) Does the exemption for “transactions … concerning … payments [or] transfers” apply to services, such as those offered by the taxpayer in the present case, of receiving and processing payments made over the counter at a bank for credit, through the banking system, to the taxpayer’s bank account?
(8) What particular factors have to be taken into account when deciding whether a charge (such as the payment handling charge in the present case) that is applied by a taxpayer to its customer in respect of the customer’s choice to make payment to the taxpayer using a particular payment method, and which is individually identified in the contractual document and separately itemised in invoices issued to customers, is a separate supply for VAT purposes?

AG Opinion

None

Decision

For the purposes of collecting value added tax, the additional charges invoiced by a provider of telecommunications services to its customers, where the latter pay for those services not by Direct Debit or by Bankers’ Automated Clearing System transfer but 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 consisting in the supply of telecommunications services.

Summary

Additional fees charged when using certain methods of payment for mobile telephony services

For the purpose of levying VAT, the additional costs charged by a telecommunications service provider to its customers when they pay for those services not via the Direct Debit System or by transfer via the Bankers’ Automated Clearing System, but with a credit card, debit card, check or cash at the counter of a bank or at the counter of an intermediary authorized to receive payment on behalf of this service provider, no consideration for a service that is distinct and independent of the main service that exists in the provision of telecommunications services.

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