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HMRC internal manual

VAT Finance Manual

Intermediaries: When is someone acting as an intermediary?: CSC

In the case of CSC the ECJ set out guidance on when someone is seen as carrying on “negotiation” for the purposes of Article 135(1) (b) to (f)(“acting in an intermediary capacity” for the purposes of item 5 of Group 5).

CSC provided a call centre service for financial institutions including Sun Alliance (“SA”), SA contracted with CSC to provide all communications and contacts with the general public concerning SA’s Daisy Personal Equity Plan (“Daisy PEP”) product.


  • provided potential investors with information;
  • provided investment application forms; and
  • checked and processed the application forms (e.g. that the form was correctly completed, the applicant was eligible, correct payment was received etc).

CSC did not deal with the formalities of issuing and transferring the units in the Daisy PEP.

In the findings of the court, the court began by looking at the concepts set out in the earlier ECJ judgment in the case of Sparekassernes Datacentre (“SDC” – dealt with in VATFIN2260 and applying them to the case of CSC. It stated that:

  • 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 the exemptions;
  • the services provided must have the effect of altering the legal and financial situation as between the parties; and
  • 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;

It then went on to state that in coming to the above conclusions it was supported by the fact that the management and safekeeping of shares, transactions which, significantly, do not involve alteration of the legal or financial positions of the parties, were expressly excluded from Article 135(1)(f) of the Sixth Directive.

By introducing an exception to the exemption laid down by Article 135(1)(f) for transactions in securities, the phrase “excluding management and safekeeping”, which appears in that provision, places the management and safekeeping of shares under the general scheme of the directive, whereby VAT is to be charged on all taxable transactions, except in the case of derogations expressly provided for. It therefore follows that services of an administrative nature which do not alter the legal or financial position of the parties are not covered by the exemption laid down in Article 135(1) (f).

The court then went on to look at what the term “negotiation” meant. In paragraphs 39 and 40 the court said:

“It is not necessary to consider the precise meaning of the word ‘negotiation’ … in order to hold that … it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.”

“On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject-matter of the contract. In such a case, the subcontractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question.”

Therefore an intermediary will be independent of the parties entering into a financial services contract, providing a distinct act of mediation and will not be merely carrying out sub- contracted services for one of the parties. It must be providing something other than a mere physical, technical or administrative service, which would alter the legal or financial situation between the parties.