The First-tier Tribunal (FTT) has handed down its decision in JPMorgan Chase Bank, NA (“JPM”) v HMRC, concerning supplies by JPM to JP Morgan Securities PLC (“SPLC”) under a complex set of intra-group contracts which provided SPLC with the infrastructure required to operate as a Corporate and Investment Bank.

There were two issues in dispute:

1. the “Supply Issue”: whether JPM makes more than one supply, including both a supply of “Support Services” (back-office services) and one or more supplies of ‘Business Delivery Services’, or “BDS” (making up SPLC’s trading infrastructure); and

2. the “Exemption Issue”: whether any supply of BDS, individually or collectively, was exempt from VAT.

Supply Issue

The FTT decided that the essential features of the transaction could be identified without needing to ‘go behind’ the contracts ([288]).

From the contracts, the FTT determined that all of the elements supplied worked together to provide “everything that it (SPLC) needs to enable it to achieve its aim of regulatory compliant trading” ([289]), representing a single economic aim for SPLC. The FTT also felt it would be artificial to split the different elements of the supply because the purpose of JPM making the overall supply was to ensure standardisation of trading services between its subsidiaries operating in financial markets around the world, which would be undermined if SPLC could pick and choose between the services it would receive ([293]).

Accordingly, the FTT concluded that all the elements formed a single supply.

Exemption Issue

The FTT concluded that all of the different elements of the supply were on an equal footing, so it couldn’t identify a predominant or principal element. On that basis, it concluded that, since “as a whole, the supply cannot be covered by an exemption”, the supply had to be taxable ([304]). 

In case it was relevant for a subsequent appeal, the FTT provided further obiter analysis of the Exemption Issue as distinct from its single supply conclusion.

JPM’s argument had been that SPLC had outsourced to JPM key functional aspects that are specific and essential to a transaction in securities and/or that it performed a role that was intrinsically connected with one or more of those functions. However, the FTT highlighted a number of cases (e.g. C-607/14 Bookit) that demonstrated that the mere fact that a service was essential to an exempt transaction was not enough for that service to be exempt.

Ultimately, the FTT considered that “[JPM] is in fact providing a technical or administrative service for SPLC” including a number of elements, “none of which alter the legal and financial situation between SPLC and its clients or creates, alters, or extinguishes those parties’ rights and obligations in respect of securities and none of which could be characterised as an exempt supply” (at [311]).

Implications

This is an important decision, albeit at FTT level, concerning both the single/multiple supplies argument but also the potential scope of the securities/intermediary exemptions. It remains to be seen if an appeal will be pursued but regardless, HMRC’s success in this case will no doubt prompt them to seek to apply the decision widely.