UT/2024/000002 - [2025] UKUT 00188 (TCC)

The first case is Sparekassernes Datacenter v Skatteministeriet (Case C-2/95) ) (“SDC”). That concerned provision of data-handling services to banks effecting transactions with their customers and both the payments and securities exemption. A key proposition established by the court in that case was that the fact that the service provider was a third party to that bank /customer relationship did not preclude exemption.

The court proceeded to explain the relevant principles which applied for services to fall in either the payment/transfer or securities exemptions as follows (at [66]):

“In order to be characterised as exempt transactions for the purposes of points (3) [this referred to the payment/transfer exemption] and (5) [this referred to the securities exemption] of art 13B, the services provided by a data-handling centre must, viewed broadly, form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For ‘a transaction concerning transfers’, the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre’s responsibility vis-a-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.”

As regards the securities exemption specifically, the court went on to note (at [73]) that trade in securities “involves acts which alter the legal and financial situation as between the parties and are comparable to those involved in the case of a transfer or a payment.” (In relation to the particular facts of the case, the Court noted , there was however insufficient information from the referring domestic court to determine the precise nature of SDC’s services concerning advice on and trade in securities. Insofar as the facts indicated the services included provision of financial information the court made clear that was not covered by the exemption).

The second case is CSC Financial Services Ltd v CCE (Case C-235/00). There the service provision concerned a call centre service to a financial institution in relation to sale of an investment product (providing information, application forms, checking and processing those and dealing with cancellation requests in return for a fee).

The court made extensive reference to its previous analysis in SDC noting the following points in order for the relevant services to be exempt (at [25] to [27]).

The CJEU went on to note (at [28]) that:

“trade in securities involves acts which alter the legal and financial situation as between the parties and are comparable to those involved in the case of a transfer or a payment. The supply of a mere physical technical or administrative service, which does not alter the legal or financial situation would not therefore appear to be covered by the exemption…”

The CJEU also made a point of recognising (at [29]) that the securities exemption made a specific exclusion for management and safekeeping. Those, it noted, were not activities which altered the legal or financial position.

The CJEU proceeded to also hold that the mere fact a constituent element was essential for completing an exempt transaction did not mean it was exempt concluding at [33]:

“It follows from the foregoing that the words ‘transactions in securities’ refer to transactions liable to create, alter or extinguish parties’ rights and obligations in respect of securities.”

It is also relevant to note a passage from the Advocate General’s opinion in this case given the reliance CBNA place on it. At [29] the Advocate General explained:

“Only operations which directly affect the legal relationship embodied in the security and are capable of having an impact on the substance thereof, such as, among others, the issue, transfer, endorsement, payment and redemption of the security, fall within the scope of the tax exemption under review here. Other operations, although making a contribution, are excluded from the exemption. Clear proof of this is apparent in the fact that the provision at issue indicates that the tax advantage is not to apply to the management and safekeeping of securities. Both such operations, safekeeping and management, are legal operations which relate to securities but cannot affect the legal relationship embodied in them.”