Card Protection Plan Limited v. Commissioners of Customs and Excise

The House of Lords held that the package of services supplied by Card Protection Plan Limited (CPP) was, from an economic point of view, principally an insurance transaction within the meaning of Article 13(B) of the Sixth VAT Directive (77/388/EEC) and Schedule 6 (Group 2) to the Value Added Tax Act 1983. The European Court of Justice's guidance was applied: where a transaction comprises several elements the court must determine the essential features and treat ancillary elements in the same way as the principal supply. The court concluded that the registration, loss-notification and ancillary convenience services were ancillary to the dominant insurance purpose and therefore the whole package was an exempt insurance supply. The decision turned on the Sixth Directive (notably Article 13(B)), the Schedule 6 exemption and the ECJ’s test on composite supplies and ancillary services.

Background and parties:

CPP operated a card-protection subscription scheme under which a customer paid a single fee for a package of services described in a document of "15 important reasons" to join the plan. The services included confidential registration of card details, loss-notification and various forms of assistance and indemnity (including specified monetary cover and emergency cash and ticket advances). CPP arranged a block insurance policy with Continental Insurance to cover the scheme members.

Procedural history:

• Initially the Commissioners accepted the supply was exempt (1983 letter) but later ruled the supply taxable (1990 decision).
• Dispute proceeded through the London VAT Tribunal, Popplewell J, and the Court of Appeal ([1994] STC 199), which found the supply taxable as essentially a card-registration service.
• The House of Lords referred questions to the European Court of Justice under Article 177. The ECJ (Case C-349/96) defined "insurance" broadly, explained the test for single composite supplies versus distinct supplies and held that services procuring block insurance cover can be insurance transactions for VAT purposes.
• On return to the House of Lords the appeal was allowed.

Nature of the claim / relief sought: CPP appealed the Commissioners’ decision that the fee charged was wholly taxable and sought recognition that the supply was exempt as insurance or, alternatively, partly exempt and partly taxable.

Issues framed: (i) whether the transaction was a single composite supply or several independent supplies for VAT purposes; (ii) whether the package constituted "insurance transactions" (Article 13(B)) and related services, including whether assistance activities fell within insurance; and (iii) whether the exemption could be limited to persons authorised under national law.

Court’s reasoning: The House of Lords adopted the ECJ’s approach that the essential features of the transaction must be identified and that ancillary services take the tax treatment of the principal supply. Applying those criteria to the 15-point description of services, the dominant purpose objectively was provision of insurance cover (monetary indemnities and assistance) and the other services (registration, notification, replacement cards, tags and medical-warning cards) were ancillary means to secure or administer that insurance. The ECJ ruling that a taxable person procuring block insurance for customers can be treated as supplying insurance was decisive; privity between the insurer and client did not prevent the exemption. Consequently the whole package was treated as an exempt insurance supply. The House of Lords also noted that the exemption under the Sixth Directive is not confined to insurers authorised under national law.

Appeal allowed. Applying the European Court of Justice’s guidance, the House of Lords held that the transaction was, in economic reality, principally an insurance supply within Article 13(B) of the Sixth VAT Directive and Schedule 6 to the Value Added Tax Act 1983; the other services were ancillary and therefore shared the exempt treatment. The House of Lords allowed CPP's appeal and awarded costs.

London VAT Tribunal (decision for the Commissioners as summarised) -> Popplewell J (reported [1992] STC 797; held there were insurance elements but treated some services as separate) -> Court of Appeal [1994] STC 199 (dismissed CPP's appeal; found a single taxable card-registration supply) -> Reference to the European Court of Justice (Case C-349/96; ECJ judgment [1999] 2 AC 621) -> House of Lords ([2001] UKHL 4) allowed CPP's appeal.