Grattan Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 September 2013 |
| Neutral Citation | [2013] UKFTT 488 (TC) |
| Date | 11 September 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 488 (TC)
Judge Roger Berner, Julian Stafford.
Dr Paul Lasok QC, instructed by KPMG LLP, appeared for the Appellant
Peter Mantle and Philip Woolfe, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
VAT - pre-1 January 1978 supplies - agents' commissions in respect of third party purchases - whether directly applicable right under the Second Council Directive (67/228/EEC) ("Second Directive") art. 8(a) to retrospective reduction in taxable value of goods supplied by mail order company to agents - effect of judgment of the Court of Justice of the European Union ("CJEU") in Grattan plc v R & C Commrs (Case C-310/11) [2012] ECR I-0000 ("Grattan") - whether the principle of fiscal neutrality in its neutral tax burden sense was or was not a rule of primary law which enabled on its own the basis of assessment within the meaning of art. 8(a) of the Second Directive to be determined - held it was not - appeal on pre-1978 supplies issue dismissed.
The First-tier Tribunal dismissed the taxpayer company's appeal in relation to the question of whether the taxable value of mail order goods could be reduced by commissions paid to agents in respect of sales prior to 1978. The European Court of Justice (ECJ) had ruled that there was nothing in EC Directive 67/228, the Second VAT Directive, which provided for the taxable amount to be reduced retrospectively. Since Grattan was unable to rely on the Second Directive, its only recourse was the proposition that the principle of fiscal neutrality was a rule of primary law which enabled the basis of assessment within the meaning of art. 8(a) of the Second Directive to be determined. However, the Tribunal was satisfied that the principle of fiscal neutrality had no independent application to the basis of assessment.
The appeal by Grattan plc (Grattan) was first heard by the First-tier Tribunal in December 2010 ([2011] TC 00908) in relation to two issues, but the present hearing concerned only one of these, namely whether commission earned by mail order agents in respect of purchases by third-party customers gave rise to a retrospective reduction in the value of the supplies made by the mail order companies prior to 1 January 1978, the date from which EC Directive 77/388, the Sixth VAT Directive, superseded the Second Directive. Following the initial hearing, the Tribunal referred the matter to the ECJ for a preliminary ruling on whether, in relation to the period before 1978, a taxable person had a directly effective right under art. 8(a) of the Second Directive and/or under the principles of fiscal neutrality and equal treatment to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply, the agent received a credit from the supplier which he elected either to take as a payment of money or as a credit against amounts owed to the supplier in respect of goods already supplied. The ECJ found that there was nothing in the Second Directive that provided for the chargeable event giving rise to the tax to be set at a subsequent time or otherwise deferred (Case C-310/11; judgment given on 19 December 2012; RDV 245). Nor did the directive provide for the alteration of a tax debt that had already arisen. The current Principal VAT Directive provides a mechanism for reducing the taxable amount with retrospective effect, but there was no such provision under the Second Directive.
Having established that Grattan could not rely on the Second Directive, the only issue for the Tribunal was the question of fiscal neutrality and how the ECJ's findings on that issue should be interpreted, particularly the finding of the ECJ that the principle of fiscal neutrality is not a rule of primary law which enables on its own the basis of assessment within the meaning of art. 8(a) of the Second Directive to be determined. Grattan submitted that, properly understood, the judgment meant that the principle of fiscal neutrality has the effect, independently of the Second Directive, of requiring a retrospective adjustment to the value of taxable supplies made by the mail order companies to the agents. It maintained that the neutral tax burden embodiment of the principle of fiscal neutrality should be regarded as an independent principle to be applied as such to the facts of the case. Accordingly, Grattan submitted that the appeal in this respect should be allowed. HMRC submitted that the ECJ had decided in its judgment that the principle of fiscal neutrality in all or any of its senses does not enable the basis of assessment to be addressed on its own. Therefore, whether looking at equal treatment or neutral tax burden, the principle does not independently give any right to a retrospective reduction in the basis of assessment.
The Tribunal considered a number of authorities and concluded that there was nothing in them to cast any doubt on the clear meaning to be given to the statement of the ECJ that the principle of fiscal neutrality, in every sense, is not a rule of primary law which enables on its own the basis of assessment within the meaning of art. 8(a) of the Second Directive to be determined. The Tribunal took comfort in its interpretation from the opinion of Advocate General Kokott that the principle of neutrality has no authority which transcends the legislation. It may, therefore, be used as an aid to interpretation in case of doubt, but may not extend or restrict the provisions of the applicable VAT directive. Thus, in particular, it cannot compensate for the fact that the Second Directive does not contain any provision comparable to art. 11C(1) of the Sixth Directive. In the view of the Tribunal, there was no tension between the Advocate General's opinion and the judgment of the ECJ. Had the ECJ intended to adopt a contrary approach and decided that the principle of fiscal neutrality in the neutral tax burden sense did indeed transcend the legislation in the form of art. 8(a) of the Second Directive, it would have said as much in clear terms.
Since, in the judgment of the Tribunal, the ECJ had ruled that the principle of fiscal neutrality in its neutral tax burden sense had no independent application to the basis of assessment, the ruling of the ECJ that art. 8(a) of the Second Directive did not allow the basis of assessment to be retrospectively reduced determined the appeal in the favour of HMRC.
The matters under appeal had already been decided, in principle, in the ECJ, so no surprises were expected. However, the preliminary ruling of the ECJ required further interpretation. In the judgment of the Tribunal, the meaning of the ruling was that the principle of fiscal neutrality could not extend the provisions of the Second Directive. Therefore, since the ECJ had already found that the directive did not provide authority for a retrospective reduction in the taxable value of the goods supplied, Grattan remained liable for VAT on the full invoice price. The simple effect of the ruling was that, in respect of pre-1998 supplies, Grattan was not entitled to reduce the taxable value of the selling price of its goods to mail order customers to reflect the commission paid to its agents.
For commentary on the principle of fiscal neutrality, see the CCH VAT Reporter at 1-500.
[1]At a hearing of this appeal in December 2010 we heard argument on two issues. One of those (the compound interest issue) was whether there existed an EU right to compound interest, and if so whether such a right could be enforced in this tribunal under the statutory scheme in the Value Added Tax Act 1994 ("VATA"). The other (the pre-1978 supplies issue), to which we now return in this decision, was whether commission earned by mail order agents in respect of purchases by third party customers (referred to as "3PP commission"), which was credited to the agents' accounts with mail order companies in the Grattan group, and received by the agents in cash or by way of credit against a debit balance in the account, gave rise to a retrospective reduction in the value of the supplies made by the mail order companies prior to 1 January 1978, the date from which the Sixth VAT Directive superseded the Second Directive.
[2]We released our decision on 12 January 2011; [2011] TC 00908. We found that under domestic law - s 10(2) of the Finance Act 1972 - the consideration for the mail order supplies could not be reduced by the 3PP commission taken in cash. That issue therefore depended on the existence of a directly-applicable EU right. We could not with complete confidence determine that there was such a right, and accordingly we referred that question to the Court of Justice of the European Union ("CJEU").
[3]In consequence of our decision, we released directions on 26 May 2011 for the transmission to the CJEU of a request for a preliminary ruling. The question referred was as follows:
In relation to the period before 1 January 1978, does a taxable person have a directly effective right under article 8(a) of the Second Council Directive of 11 April 1967 (67/228/EEC), and/or the principles of fiscal neutrality and of equal treatment, to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply of goods, the recipient of the supply received a credit from the supplier which the recipient then elected either to take as a payment of money, or as a credit against amounts owed to the supplier in respect of supplies of goods to the recipient that had already taken place.
[4]After describing the way in which commission (or credits) could arise both in respect of an agent's own purchases ("AOP") and in respect of purchases made by third party customers through the agent ("3PP"), and that the dispute concerned only the 3PP commission, the reference went on to refer to the...
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