JPMorgan Chase Bank NA v The Commissioners for HMRC

For VAT purposes, a composite supply is identified by its economic reality from the perspective of the typical recipient. The decisive questions are whether its elements are indivisible and indispensable to a single economic aim. Separate availability and invoicing are supporting, rather than decisive, indicators.

A contractual allocation or invoice description cannot conclusively determine the VAT characterisation of a supply. A securities exemption requires the supplier itself to perform a distinct service which effects a change in the legal and financial relationship between the parties. Technically sophisticated infrastructure, algorithms, administration and facilitation do not suffice merely because they are essential to securities transactions.

CBNA, the representative member of a VAT group with JP Morgan Securities plc, supplied intra-group trading infrastructure and support services. The supplies were subject to the statutory treatment for certain intra-group supplies under Value Added Tax Act 1994.

The First-tier Tribunal held that CBNA made one standard-rated composite supply of support-function services, rather than separate business-delivery and support supplies. It also held, alternatively, that any separate business-delivery supplies would not fall within the financial-services exemptions.

CBNA appealed against HMRC’s VAT assessments. It challenged the First-tier Tribunal’s contractual analysis and application of the single-supply principles, and its alternative conclusions on the securities exemption and classification.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that CBNA made a single taxable supply of support-function services to SPLC. That conclusion disposed of the appeal.

2. The contractual arrangements were the proper starting point because they reflected the parties’ true agreement. Although the earlier agreements lacked detail and the 2019 agreement differentiated business-delivery and support services, the evidence supported the finding that the nature and number of services had not changed. The Tribunal was entitled to conclude that the later descriptions did not alter the VAT characterisation.

3. The First-tier Tribunal correctly applied the Levob analysis holistically. The business-delivery and support elements were closely linked, formed a single indivisible economic supply and were indispensable to SPLC’s regulatory-compliant trading business. It would have been artificial to split them. SPLC, the recipient legal entity, required the package of functions from CBNA; choices made by its internal business areas did not create separate supplies.

4. Separate invoicing was not a legal condition for separate supplies. Conversely, itemisation or separate invoices could not make a supply separate if its economic nature was a single supply. The First-tier Tribunal had not treated invoicing as decisive.

5. Obiter, if separate business-delivery supplies had existed, they would not have been exempt under Article 135(1)(f) of the Principal VAT Directive. The exemption concerns a distinct service which itself effects a change in parties’ legal and financial relationship in respect of securities. CBNA’s infrastructure, data, models, automated algorithms, risk functions, settlement support and administration facilitated transactions made by SPLC and its counterparties, but did not itself execute them in the requisite legal sense.

6. Obiter, collateral and payment dispute-resolution services performed on SPLC’s behalf were not separate acts of mediation and therefore were not negotiation in securities. The Tribunal also rejected the challenge to the First-tier Tribunal’s use of the predominant-element test for classifying a single supply.

• Upper Tribunal (Tax and Chancery Chamber): dismissed CBNA’s appeal from the First-tier Tribunal.
• First-tier Tribunal: upheld HMRC’s position that CBNA made a single taxable supply of support-function services and held, alternatively, that separate business-delivery supplies would not have been exempt.