Single supply of global support services confirmed

The Upper Tribunal has handed down its decision in JPMorgan Chase Bank N.A. v HMRC [2025] UKUT 00188 (TCC), dismissing JP Morgan’s appeal against the First-tier Tribunal’s conclusion ([2023] UKFTT 856 (TC)) that certain services supplied intra-group between two UK entities under a global master services agreement constituted a single taxable supply for VAT purposes. See our summary of the FTT decision which JP Morgan were seeking to challenge here.

The decision reached by the UT will be of keen interest to those in the financial services sector, who may be impacted by the conclusions reached on both the exemption and single/multiple supply issues. However, due to the discussion surrounding intercompany services and contracts more broadly, it has wider application.

The facts, in brief

• The intra-group services in question were provided by JP Morgan Chase Bank N.A. (“CBNA”) to JP Morgan Securities plc (“SPLC”) under a Global Master Services Agreement (“GMSA”), which governed the provision of intra-group services by CBNA to multiple companies within the global JP Morgan corporate group.
• The GMSA was first put in to place in 2006, but was amended in 2010, 2015 and 2019.
• SPLC used the services received from CBNA in its ‘Markets’ business, in which it entered in to contracts with clients across a range of financial products.
• The services provided under the GMSA were divided by JP Morgan into two ‘categories’: Business Delivery Services (broadly, services making up the trading infrastructure) and Support Services (general corporate functions, including legal, tax, HR and IT).
• CBNA and SPLC are members of the same UK VAT group – however, because CBNA bought in services from overseas in order to make supplies to SPLC under the GMSA, the VAT liability of those services comes into question due to s.43(2A) and (2B) VATA.

The FTT decision under appeal

The FTT had concluded that CBNA made a single supply of services (comprising both the Business Delivery and Support Services) to SPLC under the GMSA, and that that single supply was standard rated for UK VAT purposes. CBNA sought to appeal this decision on multiple grounds, arguing that the FTT had made various errors of law in coming to its conclusion.

The issues

The UT’s decision details the three broad issues it had to determine:

• Single vs multiple supplies issue
  Did CBNA make a single supply of services to SPLC (as contended by HMRC) or multiple separate supplies (as advanced by CBNA)? CBNA’s primary position was that there were seven separate supplies of Business Delivery Services (one to each of the seven business divisions making up SPLC’s Markets business), but in the alternative, they argued that they made two separate supplies to SPLC – one of Business Delivery Services, and a separate supply of Support Services.

• Classification issue
  If HMRC’s position (and the FTT’s conclusion) that there was a single supply was upheld, was that supply taxable or exempt from VAT?

• Exemption issue
  Was any supply made by CBNA exempt under the financial services exemptions – specifically the securities exemption at Article 135(f) of the Principal VAT Directive? This exemption issue only properly arose in the event that CBNA were to successfully argue that there were multiple supplies made to SPLC under the GMSA (CBNA having conceded that, if a single supply was found, that supply would be taxable).

The UT’s conclusion on the issues

Single vs multiple supplies issue

CBNA appealed against the FTT’s single supply conclusion on the basis of various errors – namely that:

• The FTT has misconstrued key aspects of the contracts (the GMSA and related documents) before it;
• The FTT had ignored other material aspects of those contracts;
• The FTT had failed to recognise the limitations of those contracts and consider other evidence before it which was inconsistent with the single supply conclusion;
• The FTT had misapplied the ‘indicators’ set out in the Advocate General’s opinion in Frenetikexito (Case C-581/19) to the facts of the case.

That opinion set out four factors which should be considered when determining whether there is a single supply on the Levob basis:

• The ‘indivisibility’ of the elements of the single supply (i.e. whether the various elements making up the supply merge into a distinct new supply);
• The separate availability of the supplies (i.e. whether the different elements that make up the supply are available separately, or must be taken together);
• The indispensability of the elements for the aim of the supply (i.e. whether the transaction has a single economic aim, or whether the particular combination of the elements was important to the ‘typical’ recipient); and
• Separate invoicing is indicative of divisible supplies.

The first and third of these factors were stated to be “of decisive importance” by the CJEU in its decision in the same case, whilst the second and fourth were not considered to be decisive, but merely informative.

CBNA contended that the FTT had incorrectly conflated the decisive factors of indivisibility and indispensability with ‘close links’ and ‘necessity’, had misapplied the concept of ‘separate availability’ and had placed undue reliance on the invoicing arrangements in place between CBNA and SPLC.

The UT rejected these criticisms of the FTT’s decision. References to “close links” in the FTT’s decision had been in the context of answering the Levob test “whether from the perspective of a typical customer, two or more elements or acts supplied … are so closely linked that they form (when viewed objectively) a single, indivisible economic supply which it would be artificial to split”. The UT also rejected CBNA’s criticism that the FTT had approached the reference to a single economic purpose (indispensability) had too broad or high a level on the basis that the identified aim (carrying on business in a regulatorily compliant way) was a generic aim that could be applied to any business. There were other examples in the case law of a single supply on the basis of a package of supplies of everything that the recipient needed.

On the question of the “separate availability” test, the UT noted that there had been a difference in approach by the AG and the CJEU in Frenetikexito. The AG had referenced the ability of the typical consumer could receive certain elements of a package without others, whilst the CJEU had focussed on whether services could be obtained elsewhere. Noting the potential overlap between the two formulations, the UT suggested that the correct approach may depend on the factual matrix. In any event, the FTT could not be criticised for approaching the question from the perspective of whether the typical consumer could get the service from someone else.

Accordingly, CBNA’s appeal on this issue was dismissed on all grounds, and the FTT’s single supply conclusion upheld. The judgment supports the long established emphasis on the contract as the correct starting point for determining the VAT treatment of a transaction – stating that the contract “reveals the content of the obligation that the parties had agreed with each other”.

On the facts of this case, despite the fact that the 2019 amendment to the GMSA had put the distinction between Business Delivery and Support Services on a contractual footing, the true nature of the agreement between CBNA and SPLC to provide services had not changed as a result, nor had the substance of the services provided. The UT concluded that the single supply position that the FTT had come to on the basis of the wording of the pre-2019 GMSA could equally apply to the post 2019 periods.

Further, despite the practical differences between the Business Delivery and Support Services (the bespoke nature of the Business Delivery Services of the line of business in question, in contrast to the ‘generic’ nature of the Support Services, for example), the UT confirmed that the FTT had been entitled to take the view of the GMSA that it did (i.e. that the GMSA pointed to a single supply of services). The UT also stated that these practical differences between the Business Delivery and Support Services were not necessarily inconsistent with the existence of a single supply from CBNA to SPLC.

Although the conclusion on this single vs multiple supplies issue was sufficient to dispose of the appeal, the UT went on to consider the exemption issue.

Exemption issue

Again agreeing with the FTT, the UT confirmed that, in the event the single supply conclusion were incorrect, the services supplied by CBNA to SPLC would not in any event fall within one of the financial services exemptions from VAT. This conclusion was reached on the basis that none of the services provided by CBNA met the threshold to amount to an exempt transaction in securities, or negotiation in securities, as required for the Article 135(f) securities exemption to apply.

In coming to this conclusion, the UT referred to the established CJEU decisions in SDC and CSC, as well as the more recent decisions of the Court of Appeal and Supreme Court in Target. Per CSC, a transaction in securities is a transaction “liable to create, alter or extinguish parties’ rights and obligations in respect of securities”.

The FTT had, in coming to its conclusion that CBNA’s services were taxable, applied the ‘narrow view’ of VAT exemption which had been taken by the UK courts in Target. Those cases, focusing on the payments, rather than securities, exemption (found at Article 135(d) of the Principal VAT Directive) had concluded that for exemption to apply, the services had to themselves have “the effect of … changing the legal and financial situation of the parties” – it was not sufficient for there to be a causal link between the services and the change of the legal or financial situation of the parties, but rather the services had to actually involve the “materialisation” of the change in the legal and financial situation.

CBNA had contended that this narrow view could not be applied to the securities exemption in the same way as Target had applied it to the payments exemption, and that to do so would be unduly restrictive. They pointed to the practical differences between payments and securities transactions (a securities transaction is not confined to a single event, or action in the same way that a payment is, but may have multiple legs, for example) in support of this position.

The UT, however, concluded that it was clear from the CJEU decision in SDC that the FTT had correctly applied the ‘narrow’ view from Target to the securities exemption, stating that the securities exemption requires “a functional focus on the transaction itself”. Despite the differences in the two transaction types (and the acknowledged increased complexity of securities transactions), the key question to determine the application of the exemption in this case was whether the services provided by CBNA actually altered the legal and financial relationship between SPLC and its clients or other counterparties. No such change in the legal and financial situation could be found on the facts – it was in particular noted that a role in setting prices and determining pricing mechanisms was not found to alter the legal and financial situation of parties to a transaction, nor was the use of automated trading systems and algorithms. The UT stated that such infrastructure “supports the transaction but does not itself constitute execution”. Other activities which were specifically called out as not being sufficient to apply the securities exemption included facilitating the settlement of securities transactions through CREST, performing netting calculations, hedging derivatives, and collateral and payment management throughout the lifecycle of a derivative.

Classification issue

In light of the conclusion reached on the exemption issue, the UT was not required to give significant consideration to the classification issue, and quickly dismissed CBNA’s argument that the FTT had incorrectly applied the concept of “predominance” as discussed in Gray & Farrar.

Comment

The decision of the UT is important for a number of reasons. The UT has supported the approach of the FTT to the indivisibility of the services provided to an affiliate entity under a broad global services agreement, despite the FTT's approach being based on a very high level view of economic purpose (indispensability). It should also be noted that the decision is clearly highly fact specific and based on the particular contractual provisions represented by the worldwide GMSA in this case. However, as a general point, the decision perhaps highlights the difficulties of identifying with sufficient precision specific exempt outsourced services when these are embedded within such an all-encompassing global support services arrangement.

In this case, the taxpayer had recognised issues concerning the separate identification of supplies during the course of negotiations with HMRC and this led to the 2019 restatement of the GMSA, which sought to better isolate and describe the different services encompassed by the agreement. However, the UT has stressed that contractual statements around specification of distinct services cannot be determinative of the question whether, as a matter of law, there were single or multiple supplies. "The relevance of the contractual analysis is that it reveals the content of the obligation the parties had agreed with each other (and that after all is why the contractual obligation is recognised to be the correct starting point because the parties' true bargain will normally coincide with the economic reality of the transaction). Here, it is clear what the contractual arrangements were seeking to achieve, in the description of what was being provided, was to arrive at a result which approximated as closely as possible to what it was thought the correct VAT outcome was. However it cannot be right that the views of the parties of whether that obligation made up a distinct service, when analysed under VAT law, could not be determinative, simply by being encoded through a contractual mechanism. In other words the fact the parties ... had come to the view the relevant service was separate and distinct, would not be conclusive of the fact that it was."