The Upper Tribunal has referred questions to the European Court of Justice (ECJ) in a long-running case involving the VAT status of dental care plan payments, saying it needs clarification of whether the services provided are excluded from exemption on the grounds they are ‘debt collection’
The cases concerns DPAS, which designs and implements dental care plans, under which private clients of dentists, who are registered with DPAS, make monthly payments for a dental plan. The agreement – including pricing – to provide dental services under a plan is made between the dentists and their patients. DPAS provides the ‘practice branded’ stationery, marketing materials and membership cards.
There has been a second Upper Tribunal hearing, following on from the ECJ rulings in Bookit II and NEC DPAS on the ECJ’s conclusion that the services provided by Denplan were transactions concerning payments and, in principle, exempt but were excluded from the exemption, because they constituted debt collection. [The Commissioners for Her Majesty’s Revenue and Customs and DPAS Ltd, [2016] UKUT 0373, Appeal number FTC/13/2014]
The services provided by Denplan were materially indistinguishable from those provided by DPAS, save for the fact that Denplan supplied its services to the dentists, which is why they could be characterised as debt collection, whereas DPAS supplies its services to the patients.
Also, DPAS argued that, as a direct debit originator, it effects transfers of funds, unlike Bookit and NEC, which merely provided information that caused others, the merchant acquirers, to make payments.
HMRC argued that DPAS did not act in a qualitatively different way from either Bookit or NEC. The fact that DPAS was a direct debit originator, rather than a credit or debit card processor, means no more than that DPAS is authorised to obtain payments by direct debit. DPAS’s activity is functionally the same as Bookit and NEC.
DPAS requests payments under the authority of a mandate from the patient to the patient’s bank. The banks effect the transfers. DPAS merely carries out administrative tasks for moving money between bank accounts, and recording what transfers have been made by others. DPAS does not itself debit or credit the respective bank accounts.
HMRC argued that the ECJ’s rulings make clear that an intermediary, which calls on other financial service providers to effect transfers between bank accounts, does not thereby make a supply of transactions concerning transfers in its own right.
DPAS argued that it does not supply debt collection services because, by its nature, debt collection can only be performed for the creditor. A debt collection service is not a service provided to the debtor. Thus, DPAS argued that its services are not excluded from the exemption.
HMRC argued that it is the nature of the services provided, and not the nature of the person supplying or receiving them, which counts.
The Upper Tribunal held that there is doubt as to the correct application of the term ‘debt collection’ in the question, which the Upper Tribunal was unable to resolve was objectively what was the nature of the services supplied by DPAS, i.e. whether the type of activities undertaken by Denplan, in providing services to dentists and which constitute debt collection, ceased to constitute debt collection when undertaken by DPAS in providing services to patients.
Even putting to one side the fact that the arrangements changed, the Upper Tribunal considered that it was not clear that services, such as those provided by DPAS to new patients, should not be regarded as ‘debt collection’.
Thus, the Upper Tribunal has decided to make a reference to the ECJ, and will draft the questions to be referred to the ECJ after the parties had suggested the questions or had made submissions on drafting the questions.
Stan Dencher CCH tax writer said: ‘The Upper Tribunal will decide HMRC’s appeal when the ECJ has provided some guidance. In its first decision, the Upper Tribunal had declined to make a reference to the ECJ primarily because it considered that it was highly likely that the rulings of the ECJ in Bookit II and NEC would determine one or both of HMRC’s second and third grounds of appeal.’
