Grattan
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 January 2011 |
| Neutral Citation | [2011] UKFTT 31 (TC) |
| Date | 12 January 2011 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00908
[2011] UKFTT 31 (TC)
Judge Roger Berner (Chairman), Julian Stafford (Member)
Dr Paul Lasok QC and Rebecca Haynes, instructed by KPMG LLP, for the Appellant
Jonathan Swift QC, Peter Mantle and Philip Woolfe, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - agents' commissions in respect of third party purchases paid in cash by mail order companies - whether directly applicable right under Second Directive to retrospective reduction in consideration for goods supplied between 1 April 1973 and 31 December 1977 - whether question to be referred to the ECJ Remedy - whether directly effective EU right to compound interest - whether satisfied by payment in accordance with s 78 VATA - binding effect of John Wilkins - whether EU law requires the remedy to be available under VATA and enforceable in the Tribunal - whether questions to be referred to the ECJ - Littlewoods
1. This is the consolidated appeal of Grattan plc ("Grattan") against decisions of the Commissioners ("HMRC", which expression we use to include the former Commissioners of Customs and Excise), firstly not to repay to Grattan part of the amount claimed by it under Value Added Tax Act 1994 section 80s 80 of the Value Added Tax Act 1994 ("VATA") in respect of VAT claimed to have been overpaid on certain supplies made before 1978, and secondly to pay only simple interest pursuant to s 78 VATA (and not compound interest) on principal amounts repaid to Grattan by HMRC under s 80.
2. Grattan was represented by Dr Paul Lasok QC and Rebecca Haynes. Jonathan Swift QC, Peter Mantle and Philip Woolfe appeared for HMRC.
3. Grattan is the representative member of a VAT group whose members carry on the business of retailing goods by mail order. In the course of that business companies that are now within the Grattan group used the services of persons described as "agents". Those agents earned commissions (or credits) in relation both to their own purchases of goods from the mail order catalogue (Agents' Own Purchases or "AOP") and purchases by third parties, (Third Party Purchases or "3PP"). That commission, which was credited to the agents' accounts with the relevant mail order company, was calculated as a percentage of the payments received by the relevant mail order company in respect of the relevant purchases, and could be taken in goods or in cash.
4. According to evidence of Mrs Patricia Vann, a consultant to Grattan who was Grattan's indirect tax manager from April 2001 to July 2008, which was not contested, in a traditional agency situation the agent would hold one account and have a limited number of third party "sub-customers" to whom she would pass the catalogues. The agent would place the sub-customers' orders by telephoning the call-centre or by sending off an order form. Unless an alternative delivery address was specified, the goods ordered would be delivered to the agent, for onward distribution to sub-customers. Payment for goods, usually in instalments, would be collected by the agent from the sub-customers and periodically remitted to the mail order company.
5. We heard that the Grattan and Freemans brands (both within the Grattan group) operated different customer systems. In a traditional agency situation, the Grattan brands would not know who the sub-customers were. However, the more complex customer system operated by the Freemans brands identified the sub-customers and held details of their orders and payments. When Freemans joined the Grattan group (on 27 February 2000), both systems continued to operate in tandem.
6. The agents earned commission in relation to the goods they bought for themselves and the goods purchased by their sub-customers. Goods were generally paid for in instalments and agents were provided with statements every 28 days. For the Grattan brands, agents would be issued with collection cards enabling them to keep their own records of sub-customers' orders and payments which could then be tallied up and compared with the statements received from Grattan.
7. The agents earned commission of 10% based on the amounts paid by themselves and their sub-customers. The commission would be credited to an account and the agent could then claim it as a cheque payment, as a credit against their account balance or as a full or part payment against the purchase of further goods ("secondary goods"). One of the brands within Grattan, "Look Again", provided a further 2.5% commission if the agent used the commission to purchase further goods.
8. Originally, in accounting for VAT, the commissions paid in relation to 3PP were treated as consideration for a supply of services by the agent and not as a discount or discounts reducing the consideration for, or taxable amount of, the relevant supplies of goods. The companies later disputed this treatment and made a series of claims under s 80 VATA in respect of VAT that was said to have been overpaid. Further claims were made following the Court of Appeal judgment in Customs and Excise Commissioners v Littlewoods Organisation plc [2001] STC 1568 ("Littlewoods 2001 CA"), and then after Marks and Spencer plc v Commissioners of Customs and Excise [2002] STC 1036 the claims extended back to the inception of VAT in the UK on 1 April 1973.
9. Certain payments have been made by HMRC in respect of the claims, together with simple interest calculated in accordance with s 78 VATA. However, not all claims have been met, and there is an issue about the appropriate measure of interest to be applied to the whole of the amounts that have either been repaid or, as a result of this appeal, are found to be repayable.
10. In the part of this appeal that concerns the right to repayment of a principal amount, the only circumstance at issue is that of the agent receiving commission in respect of 3PP transactions in cash. For the period since 1 January 1978 it has been accepted by HMRC that, following Freemans plc v Customs and Excise Commissioners (Case C-86/99) [2001] STC 960 and, more particularly, Littlewoods 2001 CA, the effect of Article 11C(1) of the Sixth Council Directive of 17 May 1977 (77/388/EEC) is that 3PP commission taken in cash reduces the value of the taxable supplies of goods made by the mail order company after those supplies have taken place.
11. At issue in this appeal are supplies made before 1 January 1978, the date from which, according to Article 1 of the Sixth Directive, at the latest Member States were required to implement the Sixth Directive. Prior to that the applicable directives were the First Council Directive of 11 April 1967 (67/227/EEC), and in particular the Second Council Directive of 11 April 1967 (67/228/EEC). Grattan's case essentially is that, either under domestic law, or pursuant to a directly applicable right under the Second Directive, it was entitled in the period from 1 April 1973 to 31 December 1977 to a retrospective reduction in the value of its supplies when 3PP commission was taken in cash; in other words that there is no difference in the positions pre-and post-1 January 1978. This is disputed by HMRC.
12. The second issue concerns Grattan's claim to compound interest in respect of all amounts of VAT that have been overpaid, and accordingly are recoverable as such. It breaks down into two parts. The first concerns the existence and extent of an EU right to interest when VAT has been collected in breach of a directly effective EU right. The second, which applies to the extent such an EU right is found to exist, and to the extent that it is not satisfied by payment in accordance with s 78 VATA, concerns the means whereby that right may effectively be enforced. Grattan says that this should be enforced under the statutory scheme in VATA, and that a claimant should not be required to commence two sets of proceedings, one under the statutory scheme in respect of the principal amount claimed, and another before the High Court for the related interest. HMRC say that the Upper Tribunal has decided in John Wilkins v Revenue and Customs Commissioners [2009] STC 2485 that even accounting for purposive construction an EU right cannot be accommodated within s 78 VATA and that all cases to date (both in the Upper Tribunal and in the High Court) demonstrate that, if the EU right exists, and if it goes further than s 78 VATA, it is a right that can effectively be realised through a common law restitution claim in the High Court.
13. At the outset of the proceedings there was a third issue before the tribunal, which concerned a dispute over whether commission was provided to agents who made no purchases on their own account. During the hearing the parties informed us that this issue had been resolved between the parties, and accordingly it no longer falls to be determined by us.
14. Grattan's primary submission is that the consolidated appeal should be allowed. However, it also submits that, viewing matters pragmatically, the real issues between the parties are matters of EU law that are, not only before this tribunal, matters of serious dispute. In these circumstances Grattan also submits that, instead of deciding the consolidated appeal at this stage, the tribunal should make a reference, on both issues, to the Court of Justice for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union, pursuant to European Communities Act 1972 section 3 subsec-or-para 1s 3(1) of the European Communities Act 1972. HMRC on the other hand submit that there is no decision in this appeal that requires a reference to be made, and their primary submission is that we should dismiss the appeal. However, HMRC also recognise that, in relation to the compound interest issue, a reference has recently been made on the basis of similar factual circumstances in Littlewoods Retail...
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