ING Intermediate Holdings Ltd v HM Revenue and Customs

For VAT purposes, the court must identify the parties’ true agreement from the contract while considering the transaction’s economic purpose. It may go behind contractual terms only where they do not reflect the true agreement. An easy-access deposit account providing facilities for deposits, withdrawals, instructions, statements and remote access is a banking service, not merely receipt of a loan. The service may be supplied for consideration without express fees where the contractual arrangement shows that the deposit and agreed interest terms include payment for the service and there is a direct link. Non-monetary consideration can be valued in money by reference to evidence, even without a market benchmark. Such banking transactions fall within the relevant VAT exemptions.

ING Intermediate Holdings Ltd, the representative member of a VAT group, sought to recover input VAT incurred in connection with a retail deposit-taking business operated by group companies. The First-tier Tribunal found that the business supplied banking services and that those services were provided for consideration. The Upper Tribunal dismissed the appeal in [2016] UKUT 298 (TCC).

The Court of Appeal considered whether the arrangements involved a supply of services rather than merely receipt of deposits, whether the services were supplied for consideration, and whether any non-monetary consideration could be expressed in monetary form.

The appeal was dismissed unanimously. Arden LJ gave the leading judgment, with Kitchin and Floyd LJJ agreeing.

1. Nature of the transaction. The court accepted that VAT analysis must consider the economic purpose of a transaction, but held that the starting point is to identify what the parties agreed from the terms and conditions. The court may go behind the contract only where it does not reflect the true agreement. Contractual labels are not conclusive, although they may be contemporaneous evidence of the transaction’s nature. This approach was consistent with Revenue and Customs Commissioners v Newey C-653/11 and Secret Hotels 2 v HMRC [2014] STC 937.
2. Banking services. IDUK supplied more than a promise to repay deposits. It provided easy-access accounts, facilities for deposits and withdrawals, telephone and internet access, instructions, balances and statements. These facilities were central to the customers’ decision to deposit money. The arrangements were materially different from the securitisation transaction in MBNA Europe Bank Ltd v Revenue and Customs Commissioners [2006] STC 2089, where the transfer of receivables was an essential precondition to the securitisation service.
3. Consideration. The arrangements constituted a barter transaction. The deposits and agreed interest terms provided consideration for both the interest payments and the banking services. The absence of express fees did not establish that the services were free. The factual link between the deposits and services satisfied the requirement for a direct link between supply and consideration.
4. Valuation and exemption. Non-monetary consideration could be valued by evidence of what the depositor implicitly gave up in interest to obtain the banking services. A benchmark was not essential, and the court declined to prescribe a particular methodology. The deposit-taking business constituted exempt banking services under Articles 135(b) and 135(d) of the Principal VAT Directive 2006/112/EC. The appeal was therefore dismissed.

• Court of Appeal (Civil Division): In [2017] EWCA Civ 2111, the appeal was dismissed.
• Upper Tribunal (Tax and Chancery Chamber): In [2016] UKUT 298 (TCC), Morgan J and Judge Falk dismissed the appeal from the First-tier Tribunal.
• First-tier Tribunal: Judge Mosedale’s decision dated 7 October 2014 found that the deposit-taking business supplied banking services for consideration.