No VAT exemption for indivisible intra-group supplies

In JPMorgan Chase Bank NA v HMRC [2023] TC8957, the First Tier Tribunal (FTT) found that support and business services supplies were one single supply not qualifying as exempt from VAT. The intra-group supply exemption was disapplied due to elements coming from overseas, meaning all elements had to be standard-rated. 

• JPMorgan Chase Bank NA (CBNA) and JPMorgan Securities Plc (SPLC) were part of the same global corporate group and same UK VAT group, due to CBNA having a UK branch.
• CBNA supplied 'support services' and 'business delivery services' to SPLC. Support services were more administrative in nature, including legal, HR, compliance and finance. Business delivery services provided a trading infrastructure, including technology, operations and market risk, without which SPLC could not trade.
• These services would ordinarily be disregarded between UK VAT group companies.
• The provision of the services was dealt with under a master services agreement and billed in a lump sum using the group billing software. It was not possible to identify exempt and non-exempt services or even individual services as part of the agreement. CBNA provided all of these services to group affiliates.
• It was confirmed that SPLC would not have been able to decline any of the services, as they ensured standardisation across the global group.
• In order to supply some of the services, CBNA bought overseas services in order to make supplies to SPLC.
• HMRC argued that this disapplied the intra-group exemption, as per s.43 (2A) and (2B) VATA 1994.
• CBNA accepted that the support services were subject to VAT.
• As part of ongoing wider enquiries into the JPMorgan business, HMRC raised protective assessments which included disapplying the intra-group exemption, treating all services as a Single supply and subject to standard-rated VAT.
• CBNA appealed to the FTT.

The FTT found that:

• The services agreement did reflect economic reality at the time.
• All of the services were required by SPLC in order for it to trade, so no distinction could be drawn between the support services and the business delivery services.
• All elements of the supply were closely linked and not available separately.
• This and the wording of the agreement indicated one single supply of all the services provided.
• Despite the test in Gray & Farrar International LLP v HMRC [2023] EWCA Civ 121, it was not possible to identify a principal element of the supply, all elements were equally necessary. As such, the supply as a whole had to be standard-rated.

The FTT decided that there was one single supply of services that was not to be disregarded as an intra-group supply and was not exempt as a supply of financial services. The appeal was dismissed.

Useful guides on this topic

Mixed supply: single or multiple supply
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?

Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?

A beginner's guide to VAT
VAT: Where do I start? What is VAT? Who has to register for VAT? What rate should you charge? How do you calculate VAT? When are your VAT filing obligations?

 External link

JPMorgan Chase Bank NA v HMRC [2023] TC8957