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

The purpose of the EAP as indicated by the recital to the GMSA was to set out:

“…the guidelines necessary to determine the nature of the Expense Products reflected in the Product and Price Guide that can be amalgamated to represent the consolidated price of Services provided for purposes of value added tax or other analogous indirect taxes.”

The overview section explained:

“The objective of the indirect expense allocation process is to accurately align the costs incurred for providing internal services with the intended beneficiary of those services. This policy covers costs that are charged through SAPCO (the JPMC expense allocation system) and is applicable for both management reporting (MIS) and financial accounting purposes…”

That objective was referenced again in Appendix B which dealt with “Indirect Tax Implications”, and explained:

“The process for such inter-entity charges is therefore geared towards identifying cost components of service teams and defining them at a granular Expense Product level. The Product and Price guide unit is therefore more accurately defined as an Expense Product rather than as a service. This is reflected in the Global Master Services Agreement which provides the contractual framework for these inter company allocations and financial charges.”

The policy then explained the basis for aggregating elements up to a single supply for which a charge was made and that the service would have a single treatment for indirect tax purposes:

“In order to correctly identify the service provided and the total consideration for that service, Expense Products must be grouped by the functional group (in the management accounting hierarchy) which receives a service in the particular legal entity. Certain functional groups in a provider legal entity operate in a stand alone or an independent manner and will provide distinct services not part of a single Service. Other functional groups, particularly business aligned operational support groups, rely on corporate functions and the firm’s global infrastructure to deliver a service.

6.

Thus:

6.1.

In a single legal entity, the recipients of expense allocations that are financial allocations (ie cash-settled) should be identified. These recipient organizations at the lowest level should be grouped in accordance with the management accounting hierarchy at an appropriate level for indirect tax purposes. This level will be sufficiently high to capture all organizations whose input is required to provide a service and this will allow the service to be categorized for indirect tax purposes.

6.2.

Providing organizations (or groupings of organizations in the management accounting hierarchy) which provide standalone and distinct services will be identified and all financial allocations from such providers will be treated as distinct services. These allocations will not be grouped with allocations from other providers for the purpose either of invoicing or of assessing liability for VAT and analogous charges.

6.3.

Additionally, there will need to be identified providing organizations which can be grouped according to their functions as providers of either:

a.

the essential element of a service (such as business-aligned support groups responsible for the operational support of a front office); or

b.

ancillary elements to a service.

6.4.

In a legal entity to legal entity relationship, allocations from groups

falling into 3 (a) and (b) above which are identifiable to a single group in 1 above will be grouped together and identified as providing a single service for invoicing and indirect tax purposes.

The policy proceeded to give examples (which it is convenient to discuss under the relevant ground of appeal below).