C-235/00 CSC Financial Services

JUDGMENT OF THE COURT (Fifth Chamber)

13 December 2001 *

In Case C-235/00,

REFERENCE to the Court under Article 234 EC by the High Court of Justice of England and Wales (Queen's Bench Division) for a preliminary ruling in the proceedings pending before that court between

Commissioners of Customs & Excise

and

CSC Financial Services Ltd,

on the interpretation of Article 13B(d)(5) of the Sixth Council Directive (77/388/ EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1),

* Language of the case: English.

THE COURT (Fifth Chamber),

composed of: P. Jann, President of the Chamber, A. La Pergola, L. Sevón

(Rapporteur), M. Wathelet and C.W.A. Timmermans, Judges,

Advocate General: D. Ruiz-Jarabo Colomer, Registrar: D. Louterman-Hubeau, Head of Division,

after considering the written observations submitted on behalf of:

— CSC Financial Services Ltd, by D. Milne QC, and E. Wilson, Barrister, instructed by L. Allen, accountant,

— the United Kingdom Government, by G. Amodeo, acting as Agent, N. Paines QC, and R. Baldry, Barrister,

— the Commission of the European Communities, by R. Lyal, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of CSC Financial Services Ltd, of the United Kingdom Government and of the Commission at the hearing on 12 July 2001, after hearing the Opinion of the Advocate General at the sitting on 12 July 2001,

gives the following

Judgment

Legal context and the dispute

1By order of 1 June 2000, received at the Court on 13 June 2000, the High Court of Justice of England and Wales (Queen's Bench Division) referred to the Court for a preliminary ruling under Article 234 EC a question on the interpretation of Article 13B(d)(5) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter 'the Sixth Directive').

2That question was raised in proceedings between the Commissioners of Customs and Excise (hereinafter 'the Commissioners'), who are responsible for the collection of value added tax ('VAT') in the United Kingdom, and CSC Financial Services Ltd (hereinafter 'CSC') concerning the assessment to VAT of various services provided by CSC on behalf of Sun Alliance Group (hereinafter 'Sun Alliance').

Relevant legislation

Community legislation

3Article 13B(d)(5) of the Sixth Directive provides as follows:

'Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(d) the following transactions:

5. transactions, including negotiation, excluding management and safekeeping, in shares, interests in companies or associations, debentures and other securities, excluding:

— documents establishing title to goods, — the rights or securities referred to in Article 5(3)'.

National legislation

4Items 6(e) and 7 of Group 5 of Schedule 9 to the Value Added Tax Act 1994, in the version in force at the relevant time, exempted from VAT:

'6. The issue, transfer or receipt of, or any dealing with, any security or secondary security being

(e) units or other documents conferring rights under any trust established for the purpose, or having the effect of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever.

7 The making of arrangements for, or the underwriting of, any transaction within item 6.'

5Note 5 of Group 5 of Schedule 9 provides that '[i]tem 7 includes the introduction to a person effecting transactions in securities or secondary securities within item 6 of a person seeking to acquire or dispose of such securities'.

The facts and the question referred for a preliminary ruling

6CSC provides to financial institutions what is termed a 'call centre' service. According to the national court, that service essentially consists in the call centre handling on behalf of the financial institution concerned all its contacts with the general public in relation to the sale of certain financial products, from initial enquiry up to but excluding execution.

7Sun Alliance, which groups together a number of companies that manage investment funds and personal equity plans, entrusted to CSC all communications and contacts with the public concerning an investment product known as the 'Daisy Personal Equity Plan', under which investment is made by means of units in a unit trust.

8CSC operators provide potential investors with all the information they require regarding the Daisy Personal Equity Plan, together with the relevant investment application forms. Under applicable national legislation, they are not authorised to provide advice, merely information. CSC also processes application forms submitted by prospective investors. It checks that the form has been properly filled in, that the applicant satisfies the conditions of eligibility and that the correct payment is enclosed. It also deals with cancellation requests.

9The formalities for issuing and transferring the securities, that is to say, the units in the unit trust, are, however, carried out by a separate company unconnected with CSC.

10Sun Alliance pays CSC a fee for its services which is made up of a fixed sum and an amount reflecting the number of calls and sales.

11By decision set out in a letter of 21 April 1997, the Commissioners took the view that the services provided by CSC were not exempt from VAT under Article 13B of the Sixth Directive.

12CSC appealed against that decision to the London Value Added Tax and Duties Tribunal, which held that the exemption laid down in Article 13B(d)(5) of the Sixth Directive extended to the necessary preliminary stages of the issue and transfer of securities.

13The Commissioners appealed against that decision, arguing before the High Court that Article 13B(d)(5) exempts only the issue of securities and does not extend to preliminary steps taken by a third party on behalf of an issuer. For its part, CSC submitted that the services it provides are specific to and an essential part of the issue of securities by Sun Alliance and thus constitute transactions in securities within the meaning of Article 13B(d)(5).

14Those were the circumstances in which the High Court of Justice of England and Wales, taking the view that interpretation of certain provisions of the Sixth Directive was needed in order to resolve the dispute, decided to stay proceedings and refer to the Court of Justice the following question for a preliminary ruling:

'How is the exemption provided by Article 13B(d)(5) of the Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, in respect of "transactions in securities" to be interpreted? In particular,

(1) does the term "transactions in securities" apply only to transactions in which the parties' legal rights or obligations in respect of the security are altered?

(2) does the term "transactions, including negotiation, in securities" apply to a service of providing information to potential investors and receiving and processing applications from investors for the issue of a security (but not including preparing and dispatching the document of title to the security), where that service is provided to a person who has legal rights or obligations under the security by a person who does not have any legal right or obligation under the security?'

The question referred for a preliminary ruling

15The question has two parts which concern interpretation of (i) the words 'transactions in securities', within the meaning of Article 13B(d)(5) of the Sixth Directive, and (ii) interpretation of the words 'negotiation in securities', within the meaning of the same provision.

Interpretation of the words 'transactions in securities'

Observations submitted to the Court

16CSC argues that it is clear from paragraph 68 of the judgment in Case C-2/95 SDC [1997] ECR I-3017 that, in order to come within the scope of Article 13B(d)(5) of the Sixth Directive, the services in question must be distinct in character, specific to, and essential for exempt transactions.

17According to CSC, the condition that the services in question should be essential for an exempt transaction ensures that services are not excluded from exemption for an arbitrary reason, such as the supplier's method of invoicing and pricing. The condition that the services at issue should be distinct in character is a comparative condition requiring the services to be readily identifiable in comparison with other services. It amounts to asking whether the services give the impression of being part of the provision of the financial service as opposed to something else. The condition which requires that the services be specific to an exempt transaction qualifies the condition of their being essential by excluding services which are essential but which merely amount to the provision of routine, technical or electronic assistance, such as the leasing of computers to a bank, the supply of cleaning services, or the supply of telephone equipment or a simple telephone answering service.

18The United Kingdom Government submits that the exemptions laid down in Article 13B(d) of the Sixth Directive were accorded in respect of financial services and services provided by intermediaries in relation to financial services for the reason that such services were unsuited to the imposition of value added tax, principally because of the difficulty which exists in many instances of distinguishing the consideration for the service from the exchange of money or documents of value which comprises the service. However, supplies of administrative and management services — in relation to which there is generally no difficulty in applying the tax — remain taxable even when provided in connection with financial transactions. Moreover, in those instances where supplies of management or administration services are to be exempted, this is expressly provided for, as in Article 13B(d)(1), (2) and (6).

19According to the United Kingdom Government, the Court held, at paragraphs 66 and 73 of its judgment in SDC, cited above, that the words 'trade in securities' designate transactions which alter the legal and financial positions of the parties with regard to the securities in question. In its submission, transactions in securities plainly do not, therefore, cover administrative services of the sort provided by CSC to Sun Alliance which are at issue in the main proceedings because nothing in CSC's service alters the legal position of any person as regards any security.

20The Commission observes that the exemption laid down in Article 13B(d)(5) of the Sixth Directive does not depend on the identity or legal nature of the person or organisation providing the service, nor on the manner in which the service is provided (paragraphs 32 to 38 of the judgment in SDC). Nor does it matter, in its submission, that the client is unaware that the service is being provided, in part, by a party other than the one with which he enters into a legal relationship (SDC, paragraph 59).

21According to the Commission, the purpose of Article 13B(d) of the Sixth Directive is to exclude the application of VAT to certain financial transactions, in particular those directly concerning financial instruments, because of the practical difficulties in taxing such transactions and the potential effect of VAT on the cost of credit. Those considerations do not justify extension of the exemption to inputs used by persons making an exempt supply. It does not appear to the Commission that the services provided by CSC which are at issue in the main proceedings, consisting in the provision of information to clients and the processing of application forms but excluding any act that affects rights or obligations associated with securities, can properly be regarded as transactions in securities.

Findings of the Court

22According to the national court, the formalities for issuing and transferring the securities in question in the main proceedings, that is to say, units in a unit trust, are not carried out by CSC.

23It is important to note that the wording of Article 13B(d)(5) of the Sixth Directive does not in principle preclude a transaction in securities from being broken down into a number of separate services which may together amount to a transaction in securities within the meaning of that provision and which may benefit from the exemption laid down therein (see, to that effect, with regard to transactions concerning transfers, within the meaning of Article 13B(d)(3) of the Sixth Directive, paragraph 64 of the judgment in SDC).

24It is therefore necessary to determine what the conditions are for that exemption and whether those conditions are satisfied in the case of services such as those provided by CSC in the main proceedings.

25In paragraph 66 of its judgment in SDC, the Court held that, in order to be characterised as exempt transactions for the purposes of Article 13B(d)(3) and (5), 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 those two provisions.

26As regards, more specifically, transactions concerning transfers within the meaning of Article 13B(d)(3) of the Sixth Directive, it is clear from the judgment in SDC that the services provided must have the effect of transferring funds and entail changes of a legal and financial character. The Court held at paragraph 66 of its judgment in SDC that a service exempt under the Sixth Directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank and that, in this regard, the national court must examine in particular the extent of the data-handling centre's responsibility vis-à-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.

27In principle, the same analysis applies, mutatis mutandis, with regard to transactions in securities within the meaning of Article 13B(d)(5) of the Sixth Directive.

28As the Court emphasised at paragraph 73 of its judgment in SDC, trade in securities involves acts which alter the legal and financial situation as between the parties and are comparable to those involved in the case of a transfer or a payment. 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 laid down in Article 13B(d)(5) of the Sixth Directive.

29That view is supported, first of all, 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 — are expressly excluded by Article 13B(d)(5).

30By introducing an exception to the exemption laid down by Article 13B(d)(5) 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 13B(d)(5).

31Next, as the Court held at paragraph 70 of its judgment in SDC, it is apparent from the actual wording of Article 13B(d)(3), (4) and (5) of the Sixth Directive that none of the transactions described by those provisions concerns operations involving the supply of financial information, which cannot, therefore, be covered by the exemption provided for therein.

32Lastly, the mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service which that element represents is exempt (paragraph 65 of the judgment in SDC).

33It follows from the foregoing that the words 'transactions in securities' refer to transactions liable to create, alter or extinguish parties' rights and obligations in respect of securities.

Interpretation of the words 'negotiation in securities'

Observations submitted to the Court

34CSC maintains that the services which it provides to Sun Alliance may be described as 'negotiation in securities', within the meaning of Article 13B(d)(5) of the Sixth Directive, and that they satisfy the conditions for exemption laid down in that provision. Comparison of the various language versions reveals that most of them — although not the English version — contemplate services provided by a mere intermediary between two parties. That is the import of the French expression 'négociant', for example, or the German 'Vermittlung', or the Dutch 'bemiddeling'. CSC concludes that, since it clearly acts as intermediary between investors and Sun Alliance, the services which it provides to the latter are VAT exempt.

35The United Kingdom Government argues that the term 'negotiation', as it appears in Article 13B(d)(5), is a Community law concept. Comparison of the various language versions of the Sixth Directive, which reveals the use of words such as 'Vermittlung' in the German version, indicates that 'negotiation' is a service provided by an intermediary. The nature of that service is that it involves acting as intermediary between potential parties to a particular transaction. It plainly does not cover the supply to a financial institution of administrative services such as those provided by CSC to Sun Alliance, particularly where this role is unknown to the client of the financial institution.

36According to the Commission, the word 'negotiation' in Article 13B(d)(5) refers solely to the activities of intermediaries whose role is to procure the completion of, and negotiate the terms of a transaction on behalf of one of the parties. The Commission emphasises that their involvement in transactions may be considered to be of equal importance to that of the parties themselves and to give rise to similar difficulties of taxation. The question whether the activities of CSC at issue in the main proceedings may be regarded as those of an intermediary is essentially one of fact for the national court. Nevertheless, the Commission doubts that the provision of information and the collection and processing of application forms can be regarded as those of an intermediary in any real sense.

Findings of the Court

37Article 13(B)(d)(5) of the Sixth Directive does not define the meaning of 'negotiation in securities' for the purposes of that provision.

38Clearly, the words 'including negotiation' are not intended to define the principal object of the exemption laid down in the provision, but to extend the scope of the exemption to negotiation.

39It is not necessary to consider the precise meaning of the word 'negotiation', which also appears in other provisions of the Sixth Directive, in particular, Article 13B(d)(1) to (4), in order to hold that, in the context of Article 13B(d)(5), 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.

40On 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.

41In view of all the foregoing considerations, the answer to the national court's question must be that, on a proper construction of Article 13B(d)(5) of the Sixth Directive,

— 'transactions in securities' means transactions liable to create, alter or extinguish parties' rights and obligations in respect of securities;

— 'negotiation in securities' does not cover services limited to providing information about a financial product and, as the case may be, receiving and processing applications for subscription, without issuing them.

Costs

42The costs incurred by the United Kingdom Government and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main action, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Fifth Chamber)

in answer to the question referred to it by the High Court of Justice of England and Wales, Queen's Bench Division, by order of 1 June 2000, hereby rules:

On a proper construction of Article 13B(d)(5) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member

States relating to turnover taxes — Common system of value added tax: uniform basis of assessment

— 'transactions in securities' means transactions liable to create, alter or extinguish parties' rights and obligations in respect of securities;

— 'negotiation in securities' does not cover services limited to providing information about a financial product and, as the case may be, receiving and processing applications for subscription to the relevant securities, without issuing them.

Jann La Pergola Sevón

Wathelet Timmermans

Delivered in open court in Luxembourg on 13 December 2001.

R. Grass P. Jann

Registrar President of the Fifth Chamber

OPINION OF ADVOCATE GENERAL DÁMASO RUIZ-JARABO COLOMER delivered on 12 July 2001

Introduction

1The question which the High Court of Justice of England and Wales, Queen's Bench Division (Crown Office) — hereinafter 'the High Court' — has referred to the Court of Justice concerns the interpretation of one of the exemptions for domestic transactions provided for by the Sixth Value Added Tax Directive 2 (hereinafter 'the Sixth Directive').

2The issue in the proceedings before the United Kingdom court is whether the services provided by CSC Financial Services Limited ('CSC') to a financial institution are subject to value added tax ('VAT'). In particular, the High Court wishes to ascertain whether those services qualify for the exemption contained in Article 13B(d)(5) of the Sixth Directive.

I — Facts, the main proceedings and the question referred to the Court

3CSC is a company which offers intermediary services to financial institutions consisting in the receiving and processing of telephone calls on their behalf, through a 'call centre'.

4This service is, essentially, as follows: a company advertises its financial products, giving the telephone numbers of CSC, which, using specialised staff, provides the information requested and, if appropriate, processes investment applications, but without providing advice or completing the transaction. Up to this point, all contacts between the company offering the product and the public are channelled through the call centre.

5CSC has provided Sun Alliance Group ('Sun Alliance') with services like those described above in relation to a financial product named 'Daisy Personal Equity Plan' or 'Daisy PEP' (hereinafter 'Daisy'), which is a personal scheme for investment in securities producing variable yields. 5

6Sun Alliance placed advertisements for Daisy securities in the media, giving the CSC call-centre number. Potential investors who telephoned that number were given information by the operator on behalf of Sun Alliance. 6 If callers decided to invest, CSC processed the applications and its staff verified that the forms had been properly filled in, that the applicants satisfied the eligibility requirements and that the payment was enclosed. This same procedure was followed for cancellations.

7The formalities for issuing and transferring securities, and for cancellations, were carried out by another company unconnected with CSC.

8The payment for the services provided by CSC to Sun Alliance comprised two components: one was fixed and the other varied according to the volume of sales and the number and duration of the telephone calls.

9CSC appealed against the decision of the Commissioners of Customs and Excise of 21 April 1997 that the services which it supplied to Sun Alliance were not exempt from VAT. The appeal was upheld by the London Value Added Tax and Duties Tribunal by judgment of 11 February 1998, which interpreted the exemption provided for in Article 13B(d)(5) of the Sixth Directive as applying to the stages required to be completed prior to the issue or transfer of securities.

10The Commissioners appealed against the Tribunal's decision to the High Court, arguing that the provision at issue only covers operations relating to securities and does not extend to the preliminary steps taken by a third party on behalf of the issuer. For its part, CSC contends that its services to Sun Alliance were specific to and an essential part of the issue of the Daisy securities, for which reason, in its view, they were transactions concerning securities exempted from VAT by virtue of that provision.

11The High Court, entertaining doubts as to the scope of the exemption in the abovementioned provision of the Sixth Directive, referred the following questions to the Court of Justice for a preliminary ruling:

'How is the exemption provided by article 13B(d)(5) in respect of "transactions in securities" to be interpreted? In particular,

(1) does the term "transaction in securi ties" apply only to a transaction in which the party's legal rights or obligations in respect of the security are altered?

(2) does the term "transactions, including negotiation, in securities" apply to a service of providing information to potential investors and receiving and processing applications from investors for the issue of a security (but not including preparing and dispatching the document of title to the security), where that service is provided to a person who has legal rights or obligations under the security by a person who does not have any legal right or obligation under the security?'

II — The Community legislation to be interpreted

12Title x of the Sixth Directive deals with exemptions. Article 13 is concerned with exemptions within the territory of Member States, distinguishing between those for certain activities in the public interest (part A), those deriving from aspects of economic and financial policy (most of those included in part B) and those which certain writers have referred to as 'technical exemptions' (those set out in subparagraphs (c) and (f) of part B and in part C. The second group includes transactions in securities.

13The provision of which the High Court seeks an interpretation from the Court of Justice reads as follows:

'Exemptions within the territory of the country

B. Other exemptions

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemption and of preventing any possible evasion, avoidance or abuse:

(d) the following transactions:

5. transactions, including negotiation, excluding management and safekeeping, in shares, interests in companies or associations, debentures and other securities, excluding:

— documents establishing title to goods, — the rights or securities referred to Article 5(3)'.

III — Procedure before the Court of Justice

14Written observations were submitted within the time-limit laid down for that purpose by Article 20 of the EC Statute of the Court of Justice by the United Kingdom Government, CSC and the Commission.

15The parties presented oral argument at the hearing on 12 July 2001.

IV — Examination of the question submitted

16The points raised by the High Court concern 'transactions in securities' and, in particular, the question whether that expression must cover only action which affects the substance of the legal relationship inherent in the security and whether it extends to services like those provided by CSC.

1. Interpretative criteria

17The answer to be given by the Court of Justice must take as its starting point the fact that, as a general rule, VAT applies to all supplies of goods and services effected for consideration within the territory of a Member State by a taxable person. Dispensation is the exception 1 and, like every mitigation of the obligation to pay tax, must be restrictively interpreted. On the contrary, any exclusion from an exception, in so far as it implies a return to the general rule, escapes the principle of strict interpretation.

18Nor should the fact be overlooked that the provision of which the High Court seeks an interpretation embodies an economic incentive with a negative tinge, which is defined exclusively by reference to criteria of an objective nature. It is the transactions which are exempt, not the persons who carry them out, even if the latter are the beneficiaries.

19Finally, a common market based on free competition, displaying features similar to those of a real internal market, requires neutrality of the common system of VAT to be ensured and the system of exemptions impinges in some respect on that neutrality by disregarding the principle of generalised liability to tax. Consequently, in order to reduce exemptions from the tax and, above all, to ensure that arrangements for the tax are coherent and consistent in all the Member States, there must be a consensus that the exemptions provided for in Article 13 of the Sixth Directive are autonomous concepts of Community law.

2. The meaning of 'transactions in securities'

20This term must be analysed from two points of view: grammatical and teleological.

21Regarding the grammatical aspect, I set out a number of considerations in my Opinion in SDC, cited above. There I said that the 'transactions' referred to in Article 13B(d) of the Sixth Directive are genuine acts in the law.

22The romance language versions use a 20 word of rather limited meaning, deriving from the latin verb operari, which means 'to act', 'perform' or 'work'.

23For its part, the English text of the Sixth Directive uses a word which, though also of Latin origin, is more specific and therefore more expressive. The word used is 'transactions' which derives from the Latin word transactus, the participle of the verb transigere, which, in turn, originates from agere. Literally, this means 'cause to pass through something'. The German version uses the word Umsätze, which refers to 'turnover', 'dealings'. However, in Spanish, the second accepted meaning of the word 'transacciones' involves striking a bargain, a deal or a commercial agreement. By definition, every deal alters the pre existing legal situation and, consequently, is capable of creating, changing and extinguishing rights and obligations. It is not without reason that acts in the law constitute one of the sources of obligations.

24If I move away from formal aspect and 22 focus on a more substantive issue, such as identification of the aim pursued by the Community legislature in granting an exemption from the tax obligation where the taxable event is any of the operations referred to in Article 13B(d) of the Sixth Directive, I find that the exemption can have no rationale other than that of liberating from the tax regime transactions which, in view of their frequency and habitual nature, are a central component of the financial systems and, therefore, of the economic activities of the Member States. The aim pursued is to avoid a burden on certain services which would be liable to hamper the functioning of the market.

25That being the aim of the provision, in my opinion the only transactions to be exempted must be those whose exclusion is essential in order to attain that result, in other words those which are capable of altering a legal position by the creation, changing or extinguishment of rights and obligations. Neutral operations, having no impact ad extra, can be taxed, because taxation of them has no impact on the financial system.

26I pointed out a few lines earlier that exemptions from VAT run counter to the principle of generalised taxation and call in question its neutrality, because they remove the obligation of passing on the burden of taxation. This effect, which negates the central purpose of the common system of VAT, must be reduced to a minimum, so as to apply only to transactions in which the imposition of VAT could place an unde-sired burden on economic activity.

27For reasons connected with both the grammatical sense and the purpose of the provision of which an interpretation is sought from the Court of Justice, I consider that the 'transactions in securities' referred to an Article 13B(d)(5) of the Sixth Directive are those transactions which are capable of creating, changing or extinguishing rights and obligations of the parties in relation to securities.

28CSC made a valiant effort in its written observations to make the SDC judgment say what it does not say. It attributes to that judgment the idea that, for an element of an exempt operation to fall within the exemption, it must constitute a specific, essential and identifiable action, and it contends that the services which it supplies to Sun Alliance display those characteristics. But the judgment says something different. For the Court of Justice, the exemption applies to activities which, involving a change in a legal position, genuinely perform the function of the tax-exempt operation, which means that they actually constitute that operation. It is absolutely clear that the services provided by CSC to Sun Alliance do not fall within that category.

29Only operations which directly affect the legal relationship embodied in the security and are capable of having an impact on the substance thereof, such as, among others, the issue, transfer, endorsement, payment and redemption of the security, fall within the scope of the tax exemption under review here. Other operations, although making a contribution, are excluded from the exemption. Clear proof of this is apparent in the fact that the provision at issue indicates that the tax advantage is not to apply to the management and safekeeping of securities. Both such operations, safekeeping and management, are legal operations which relate to securities but cannot affect the legal relationship embodied in them.

30The exception is 'negotiation' in relation to securities, which is indeed exempt, but is, as I shall explain below, so closely linked, subjectively and objectively, with the operations which create, change or extinguish the rights represented by the security that its inclusion within the scope of the tax benefit appears fully justified.

3. The services of providing information on securities and processing investment applications

31Thus, only actions which create, change or extinguish rights and obligations of the parties in connection with the security are covered by the provision of which an interpretation is sought by the High Court. It is now necessary to consider whether services involving the provision of information about a financial product and, in some cases, the receipt and processing of applications to subscribe for the securities in question fall within that classification.

32To that end, it is irrelevant that they are provided by a third party operating under a separate legal relationship. The objective nature of the exemption means that the decisive fact for its application is the nature of the transaction and not the status of the person who effects it. There is no objection to the exemption being available to any natural or legal person, distinct from the subjects of the rights and obligations inherent in the securities, if that person performs exempt operations. 2

33Consequently, the limitation included by the High Court in the last part of its second question is superfluous. In giving its answer, the Court of Justice must have regard only to the nature of the services, regardless of who carries them out.

34The activity of providing information about the financial product and processing investment applications, without giving advice or becoming involved in the issue or cancellation of securities, is of a preliminary nature and is not capable of having an impact on the substance of the legal relationship embodied in the security. Therefore, in line with the answer I suggest to the first question submitted by the High Court, the second should be answered in the negative.

35The operation subject to tax which, under Article 13B(d)(5) of the Sixth Directive, is exempt is the legal operation between Sun Alliance and the person who subscribes for Daisy securities, whether it be the issue of securities, alteration of certain objective and subjective elements, or cancellation. If the contractual authority conferred on CSC includes the powers needed to carry out, on behalf of Sun Alliance, any of those legal operations, I have no doubt whatsoever that they will be exempt from VAT. If, on the contrary, that is not the case — if its involvement is merely ancillary and preparatory to conclusion of those legal operations — then in my opinion the exemption does not extend to it.

36The term 'ancillary service' has been considered by the Court of Justice, which defined it as one that 'does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied'. 4 It is not a decisive factor in determining whether a particular operation is exempt from tax, but it provides sufficient guidance for choosing the direction to take. By definition, something which is ancillary to an operation is not a necessary part thereof, but is useful in that it completes and enhances it. If the exemption at issue here is objective, it should in principle apply only to the operation described in the legal provision, and not to others that are merely conducive to the performance of it. The principle that tax exemptions must be strictly interpreted allows that conclusion, which is applicable even to activities that are necessary in order to facilitate the supply of the tax-exempt service.

37There must be something else, which is to be inferred from the ultimate purpose pursued by tax exemptions. If a particular class of legal operations is exempted from VAT in order to achieve a specific purpose, exemption can be available only for those ancillary operations which fulfil the same purpose. In the words of the Court of Justice itself, the exemption applies only to ancillary services which fulfil the specific, essential functions of the operations described in the provision establishing the exemption; they must be services which in themselves constitute an exempt operation.

38Services merely involving the provision of information and the processing of applications to subscribe for securities do not meet the specific preconditions for being regarded as serving the actual purpose of the exempt operations referred to in Article 13B(d)(5) of the Sixth Directive. They are ancillary services — and therefore needless to say are not indispensable — which are not in any way substantive and are not capable of altering the rights and obligations deriving from the security. In SDC, to which I have made copious reference, the Court of Justice excluded the provision of financial information from the scope of the exemption. In those circumstances, and in view of the foregoing considerations, I take the view that such operations are not exempt from VAT.

39Nor can they be brought within the 39 term 'negotiation' and thereby enjoy the tax benefit under review here. The idea of 'negotiating' refers to 'settling', 'giving way', and 'dealing': in short, the idea of managing one's own rights and interests in order to arrive at an agreement. The capacity to dispose of legal rights belongs only to the person vested with those rights or to his representative, either by operation of law (patria potestas or guardianship), or by agreement (power of attorney or other grant of representative capacity).

40In short, I suggest that, in reply to the second question from the High Court, the Court of Justice rule that the term 'transactions, including negotiation, in securities' appearing in Article 13B(d)(5) of the Sixth Directive does not extend to services which are limited to the provision of information about a financial product and, if appropriate, the receiving and processing of applications to subscribe for the securities concerned, but do not include the issuing of such securities.

V — Conclusion

41On the basis of the foregoing considerations, I propose that the Court of Justice give the following answer to the questions submitted by the High Court of Justice:

(1) The term 'transactions in securities' in Article 13B(d)(5) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, are transactions capable of creating, altering or extinguishing the rights and obligations of the parties in respect of the security.

(2) The term 'transactions, including negotiation, in securities' appearing in that provision does not extend to services which are limited to the provision of information about a financial product and, if appropriate, the receiving and processing of applications to subscribe for the securities concerned, but do not include the issuing of such securities.

Notes

(1) Original language: Spanish.

(2) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Membet States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

(3) The Financial Services Act 1986 prohibits employees of companies of this kind from advising callers; their function is limited to providing information.

(4) A group of companies which manage investment funds and savings plans for individuals.

(5) The holders of the product in question enjoyed a number of tax advantages designed to encourage investment by private individuals. Subsequently, it was replaced by other forms of investment which are more attractive from the tax point of view.

(6) The CSC operators answered the questions on the basis of a manual laying down the relevant procedures. They explained to callers the nature of the product, the investments made and the eligibility requirements for investors (see paragraphs 9 and 11 of the order for reference).

(7) In its written observations (paragraph 42), CSC draws a distinction between 'Daisy PEPs' and 'other PEPS', stating that, in respect of the former, it did not prepare the documents of title and bank cheques, whereas it did perform those functions in relation to the latter. However, that distinction is not drawn in the order for reference or in the written observations of the Commission or the United Kingdom Government, which refer at all times to a single product: Daisy. Since the Court of Justice has no jurisdiction to settle the facts, this Opinion as been drawn up solely with reference to the account of the facts in the order for reference (see, as an all-embracing example, the judgment in Joined Cases C-369/96 and C-376/96 Arblade and Others

(119) 991 ECR I-8453, paragraphs 49 and 57).

(8) Premium Unit Trust Administration Limited.

(9) L.M. Pérez Herrero, La Sexta Directiva Comunitaria del IVA, Cedecs Editorial, S.L., 1st ed., Barcelona, 1997, pp. 204 and 211 to 213.

(10) See Article 2(1) of the Sixth Directive.

(11) Nevertheless, this statement must be qualified. The provision containing the exemption refers to an event previously brought within the scope of another provision as being taxable. The basis of that first provision is to be found in general principles of tax law, whether or not constitutio-nalised, such as, for example, that of economic capacity. In such cases, where regard is had to the circumstances of the taxable person, the scope of the exemption is subjective and does represent a step backwards: it does not run counter to the general rule that tax should be levied but rather concentrates on higher values (a classic example is the setting of a minimum threshold for exemption from income tax). From this standpoint, the exemption is not an exception to the general rule but rather a specific application of it: it is not an 'exceptional provision' but rather a 'special provision'. In contrast, other exemptions exist which do indeed constitute genuine exceptions, being inspired by reasons of a lower order, responding to non-fiscal objectives and not conforming with axial principles of the legal order but rather with contingent criteria generally forming part of economic policy. This group encompasses most of the 'objective' exceptions which indeed constitute exemptions and must be interpreted as such (see J.F. Francese Pont Clemente, La exención tributaria (análisis jurídico general con especial aplicación al Impuesto sobre transmisiones patrimoniales y al IVA). published by EDERSA, 1986, pp. 21 and 22).

(12) See, by way of typical examples, Case C-2/95 SDC [1997] ECR I-3017, paragraph 20; Case C-359/97 Commission v United Kingdom [20011 ECR I-6355, paragraph 64; and Case C-240/99 Skandia [2001] ECR I-1951, paragraph 32.

(13) See Case C-346/95 Blast [1998] ECR I-481, paragraph 19.

(14) The taxable person is accorded a fiscal advantage in that he is not required to pay the tax which would otherwise be payable.

(15) In my Opinion in SDC, cited above, I referred to the objective nature of the exemptions contained in Article 13B of the Sixth Directive (see point 31 et seq.). In its judgment, the Court of Justice reiterated that fact and referred, as I did in my Opinion, to the judgment in Case C-281/91 Muys [1993] ECR I-5405, paragraphs 32 to 38.

(16) See the fourth recital in the preamble to the Sixth Directive.

(17) An objective which is attained, fundamentally, by recourse to the criterion of strict interpretation to which I have referred.

(18) See Case C-349/96 CFP [1999] ECR I-973, paragraph 13. See also SDC (paragraph 21) and Commission v United Kingdom (paragraph 63), both cited above.

(19) See point 41 and footnote 13 in that Opinion. The SDC judgment is pivotal to the parties' arguments, to such an extent that the present case largely boils down to applying the principles expounded in it to the services supplied by CSC to Sun Alliance.

(20) French: opérations; Italian: operazioni; Portuguese: oper ações and Spanish: operaciones.

(21) That is the implication of the general legal principle pacta sunt servanda, embodied in the laws of certain Member States. See, for example, Article 1089 of the Spanish Civil Code and Articles 1101 and 1134 of the French and Belgian Civil Codes; Article 1134 of the corresponding Luxembourg Code is to the same effect. The Portuguese Civil Code also regards the contract as a source of obligations (Article 405 et seq.). Articles 305 and 248 of the German and Netherlands Civil Codes, respectively, have the same scope.

(22) In SDC, the Court of Justice said that the terminological differences between the various language versions of the Sixth Directive are such that an exclusively textual interpretation should be not adopted (paragraph 22).

(23) See point 42 of my Opinion in SDC, cited above.

(24) The United Kingdom Government and the Commission also refer to a practical consideration: the difficulty involved in evaluating such transactions for the purpose of taxation.

(25) The rule that exemptions must be interpreted strictly should be borne in mind.

(26) Like those undertaken by CSC. If its activity is examined and the position obtaining before and after its intervention is considered, it will be seen that there is no change. From the time when a caller contacts CSC until the application to subscribe is forwarded to Premier Unit Trust Administration Limited, there is no change: the legal position remains the same.

(27) In paragraph 66, the Court held that, for the services provided by a data-handling centre to be regarded as exempt, they must 'form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points [subparagraphs d(3) and (5) of Anicie 13B are referred to]. For a "transaction concerning transfers", the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation'.

(28) A contract for safekeeping merely involves holding and looking after movable property, which must be returned. A contract for management or administration likewise does not affect the legal relationship embodied in the security, since it involves no more than preserving its value. What is decisive is that neither contract affects the substance of the legal relationship represented by the security. S. Albella Amigo states in his article TVA y mercado de valores' published in the collection Estudios de Derecho fiscal en homenaje a Jaime Basanta, Ed. Civitas, S.A., Madrid

(199) 4, pp. 273 to 280, that the management of securities is customarily, indeed without exception, provided as a service linked with safekeeping or registration, corresponding to the traditional concept, in Spanish law, of an 'administered deposit' involving an exclusively administrative activity. Quite another thing is 'portfolio management', where the manager is empowered to decide on investments and disposals of investments within the fund entrusted to him for management.

(29) See footnote 39.

(30) It is incumbent on the High Court, first, to determine the nature and scope of the services provided by CSC to Sun Alliance and, thereafter, to determine whether, in the light of the reply given to it by the Court of Justice, they are exempt from VAT.

(31) CSC is not a parry to the relationship established between Sun Alliance and those who, by subscribing for securities, invest in its financial product.

(32) See paragraphs 32 and 48 et seq. and paragraph 6 of the operative part of the SDC judgment: see also point 33 of my Opinion in that case.

(33) '...where that service is provided to a person who has legal rights or obligations under the security by a person who does not have any legal right or obligation under the security .

(34) See CPP, cited above, paragraph 30.

(35) See SDC, cited above, paragraph 65.

(36) See paragraph 66 of SDC, cited above.

(37) See point 66 of my Opinion in SDC, cited above

(38) See point 70.

(39) The inclusion of negotiation among exempt operations is prompted by its very nature. When negotiation is undertaken, on one's own behalf or for a third party, the substance of the exempt operation is being shaped. The scope of the activity involved in negotiation is coextensive with that of the legal transaction to which it leads and, therefore, it has no life of its own and is treated in the same way for tax purposes (see CPP, cited above, paragraph

(30) : if the transaction is exempt, so is the negotiation. In this respect, it is immaterial whether the dealings are direct or carried out through a representative. Where a representative is used, his activity appears to be that of the principal and consequently, the negotiations which he carries out must be treated from a tax point of view as if they were those of the principal. Otherwise, the principle of fiscal neutrality would be infringed.

(40) It appears from the order for reference that CSC did not represent Sun Alliance — so much so that callers seeking information and potential investors believed that they were contacting Sun Alliance and were unaware that the telephone operator was an employee of the intermediary. Consequently, the latter could not negotiate on behalf of Sun Alliance and was not even authorised to give advice to those asking for information.