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ECJ: Of ECJ VAT cases – A single transaction or multiple transactions for VAT purposes?

CPP case (Case C-349/96) FactsCard Protection Plan Ltd. („CPP"),which is headquartered in the United Kingdom, supplies a service covering the indemnification of cardholders against financial loss in the event of loss or theft of their bank cards and other damages arising on their travels (such as damages related to the finding of lost luggage) under a so-called “Card Protection Plan”.

The payment of indemnity for losses suffered by the customers on the occurrence of risks covered by the service has been undertaken by an insurance company, Continental Assurance Company of London. Thus CPP only sells a block insurance policy, while the insurance service is actually supplied by the third party insurer.

CPP argued that the services it supplies are wholly or – as multiple supplies – largely tax exempt as insurance services.

However, the UK authorities took the view that the activity of CPP can be regarded as a taxable activity, since the maintenance of a register of card numbers and the services related to loss of cards constitute a package of services where the dominant part of the services comprises a card registration service, which is a taxable service.

Main question referred to the European Court of Justice

How can it be determined whether a transaction involving the supply of two or more services is to be regarded as a single composite supply or multiple independent supplies for VAT purposes?

Judgement

On interpreting the issue, the ECJ took Article 2 (1) of the Sixth VAT Directive as a basis, based on which services that are supplied for consideration within the territory of a member state by a person acting as a taxable person are subject to VAT.

It follows from the above that in the opinion of the ECJ every supply of service must be regarded as distinct and independent. However, so as not to distort the functioning of the VAT system, transactions that are to be regarded as a single supply of services from economic point of view should not be split and the elements constituting the single supply should not be regarded as independent on applying the VAT rules. Therefore, the essential features of the transaction must be ascertained in order to determine whether multiple independent supplies are made or a single supply is made by the taxable person to the customers.

In the CPP case the ECJ also stated that there is a single supply of services where it can be stated that one of the elements is to be regarded as constituting a principal service, to which additional elements are linked as ancillary services and thus share the tax treatment of the principal service.

A service must be regarded as ancillary to a principal service if it does not constitute for the customers an aim in itself but a means of better enjoying the principal service supplied. In those circumstances, the fact that a single price is charged by the supplier of the service is not decisive. However, the ECJ admitted that if a service consisting of multiple elements is supplied to customers for a single price, the single price may suggest that there is a single supply. However, the single price is not conclusive on its own.

Conclusion

The CPP case was the first judgement made by the ECJ regarding composite supplies. Based on this case, the characteristics of composite supplies can be summarised in the following non-exhaustive, conclusive listing:

  • There is a composite supply if one of the services within a package of services can be regarded as constituting a principal service, while the rest of the services are only ancillary to the principal service.
  • A service is regarded as ancillary to a principal service if it does not constitute for the customers an aim in itself but a means of better enjoying the principal service supplied.
  • If a service consisting of multiple elements is supplied to customers for a single price, the single price may suggest that there is a single composite supply.

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