In American Express Services Europe Ltd v HMRC [2019] UKFTT 548, the First-tier Tribunal (FTT) has held that the taxpayer was making exempt supplies of services to a company located outside the EU and therefore could recover VAT.


American Express Services Europe Ltd (AESEL) is a card issuer. In that role it made supplies of payment services. There was no dispute that AESEL supplied the payment services to another member of the Amex Group, but the parties disagreed about which one of two other members of the Amex Group received the services supplied by AESEL.

In a typical card transaction the following steps took place:

  1. a card member who wishes to pay for goods or services presents a card to the merchant. The data is entered into the merchant’s payment system using a point-of-sale (POS) terminal/ software or an e-commerce website
  2. the card and transaction data are sent electronically by the POS terminal to the acquirer, American Express Payment Services Ltd (AEPSL), which passes the data through the payments system for processing
  3. AEPSL sends the data to the payment card network operator, American Express Travel Related Services Company Inc (TRSCo), which forwards it to the issuer, AESEL, for authorisation
  4. TRSCo’s systems carry out the authorisation process according to pre-set criteria and then send the relevant data back to the issuer, AESEL, and acquirer, AEPSL
  5. AESEL checks that the card is legitimate, has not been reported lost or stolen and that the account has the appropriate amount of credit/funds available to pay for the transaction
  6. once the checks have been carried out satisfactorily, AESEL generates an authorisation code and sends it to TRSCo. By sending the authorisation code, AESEL confirms that it will fund the cardmember’s purchase provided the merchant and AEPSL follow the card scheme rules
  7. TRSCo sends the authorisation code to AEPSL
  8. AEPSL sends the authorisation code to the merchant
  9. the merchant concludes the transaction with the cardmember
  10. the merchant’s POS system sends the data for the completed transaction to AEPSL
  11. AEPSL forwards the transaction data to TRSCo
  12. TRSCo forwards the transaction data to AESEL which updates the cardmember’s account with the amount of the purchase
  13. AESEL pays an amount equal to the cardmember’s expenditure to, or to the order of, TRSCo and, in return, receives a fee (the billing credit)
  14. TRSCo pays or credits an amount equal to the cardmember’s expenditure to AEPSL and, in return, receives a fee (the billing debit)
  15. AEPSL pays an amount equal to the cardmember’s expenditure to the merchant and, in return, is paid a fee by the merchant
  16. AESEL sends a monthly statement to the cardmember which includes all expenditure plus any fee and/or interest chargeable for the relevant month
  17. the cardmember pays the amount shown as payable on the monthly statement to AESEL.

The parties differed in their analysis of the relevant contracts and reached different conclusions about which entity received the supplies of payment services. AESEL considered that it supplied the payment services to TRSCo, which was established outside the EU so that it could claim input tax. HMRC’s view was that AESEL made exempt supplies of payment services to AEPSL, which was established in the EU so that no input recovery was possible.

FTT decision

The appeal was allowed.

HMRC’s relied primarily on the words “on behalf of the Acquirer” in the Card Issuer Agreement. They argued that this meant AESEL should be regarded as making supplies to AEPSL. The FTT disagreed. In the view of the FTT, when read in context, the meaning of those words was plain and described the fulfilment of a service that TRSCo provided to AEPSL, namely, the service of processing and presenting charges. Accordingly, the FTT concluded that the correct contractual analysis was that AESEL made supplies of payment services to TRSCo.

The FTT then considered whether the contractual position corresponded with the economic and commercial reality of the transactions. In reaching a decision on this point, the FTT referred to HMRC v Loyalty Management UK Ltd, Baxi Group Ltd v HMRC Joined cases C-53/09 and C-55/09, and HMRC v Newey Case C-653/11, which provide guidance on the meaning of the phrase “economic and commercial reality”. In the view of the FTT, the fact there were issuers and acquirers not under the control of TRSCo was a relevant factor and this suggested the contractual arrangements were genuinely commercial. The disparity in the level of consideration obtained by AESEL and TRSCo did not necessarily mean that the commercial reality deviated from the contractual position. Similarly, the FTT did not accept that in order to provide a payment service to TRSCo, AESEL must make payment to TRSCo. The settlement of amounts due, by making accounting entries to change the inter-company balances, were transactions concerning payments and transfers for the purpose of Art 135(1)(d) of the Principal VAT Directive. The FTT therefore concluded that the economic and commercial reality of the transactions was entirely consistent with its analysis of the contracts.


The FTT observed that there is no guidance in the Principal VAT Directive or the Value Added Tax Act 1994, on how to determine who is the recipient of a supply. Where there is more than one potential recipient (such as in the case of tripartite or multi-party contracts) a two stage process is required: it starts with consideration of the contractual position and then looks at whether that is consistent with the economic reality of the transaction.

The decision can be viewed here.