Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Heathrow Airport Ltd and Others v HM Treasury and another

CCH British VAT Cases Cited authorities 88 Cited in 8 Precedent Map Related
Vincent
JurisdictionEngland & Wales
Judgment Date21 May 2021
Neutral Citation[2021] EWCA Civ 783
CourtCourt of Appeal (Civil Division)
Heathrow Airport Ltd & Ors
and
R & C Commrs

[2021] EWCA Civ 783

Lord Justice Green and Mrs Justice Whipple

High Court (Divisional) Court & Court of Appeal (Civil Division)

Value added tax – Abolition of tax free shopping for tourists following exit of UK from EU – Rithdrawal of Retail Export Scheme and Extra Statutory Concession 9.1 – Whether ESC was ultra vires – The R v IR Commrs, ex parte Wilkinson [2005] BTC 281 principle – Yes – Whether decision based on an erroneous interpretation of GATT – No – Whether the TCA altered the analysis – No – Whether there was a failure to obtain and take into account relevant evidence of adverse effects – No – Whether undue delay in bringing challenge – No – VATA 1994, s. 30(6) – EC Directive 2006/112, art. 146.

The Court, as a High Court hearing the judicial review and as the Court of Appeal hearing an appeal against the refusal of the High Court to grant permission to seek judicial review, rejected all the grounds of appeal and refused permission to seek judicial review, refused the claim for judicial review and all associated applications.

Summary

Following the exit of the UK from the EU, the government abolished tax (VAT) free shopping for visitors from outside the EU by withdrawing both the VAT Retail Export Scheme and Extra Statutory Concession 9.1. This was done, they said, to comply with the non-discrimination principle of the GATT (General Agreement on Tariffs and Trade 1994) and WTO (World Trade Organisation) rules that prevented EU and non-EU residents being treated differently.

The three appellants were all directly or indirectly affected – Heathrow Airport Limited operated Heathrow airport, Global Blue (UK) Ltd was the UK arm of a Swiss based group that operated VAT refund schemes worldwide, and WDFG UK Ltd were a major UK duty and tax-free airport retailer. They challenged the abolition on several grounds

  • The constitutional power of the Commissioners to grant tax concessions without using legislation, and the governments view that ESC 9.1 had always been ultra vires its statutory power of collection and management of taxes.
  • The scope and effect of GATT, claiming a flawed analysis by the government had led to a failure to consider less damaging alternatives.
  • An application to amend the grounds relating to the GATT was also entered. The government, they said, should have factored into their consideration the subsequent existence of the TCA (Trade and Cooperation Agreement) with the EU which amounted to a material change of circumstance and would have altered its analysis on retaining the schemes.
  • In relation to the refusal of Justice Swift to grant permission to challenge the decision, they requested permission to appeal on procedural grounds claiming the government had failed to collect the relevant evidence and therefore to address relevant considerations.

The government argued the appellants were guilty of undue delay.

Following a detailed description of the procedures followed before SI 2020/1412 came into effect (paras. 19-61), the court found as follows in relation to each of the above

Ground 1 (paras. 62–97)

Following the judgement of the House of Lords in 2005 in R v IR Commrs, ex parte Wilkinson [2005] BTC 281 the Commissioners could not grant concessions inconsistent with the will of Parliament or “untax” an activity that would otherwise have been subject to tax.

ESC 9.1 zero rated supplies of goods that should have been subject to VAT, since it applied regardless of whether the goods were actually exported or, were taken out of the UK and then returned.

The court therefore agreed with the government the concessionary scheme was ultra-vires and the Commissioners powers could not be used to grant an ESC to retain or extend the concession. Wilkinson did not mean that airside tax free sales had to be abolished but if the government had wished to retain or extend airside tax-free sales after expiry of the Transitional Period, it would have had to do this by legislation.

Ground 2 (paras. 98–217)

The VAT RES and the ESC 9.1 were both capable in principle of falling within Article I:1 of the GATT and, had they been maintained, it would have been discrimination contrary to that provision since they would have treated the EU and the rest of the world differently, with exports operating under the schemes receiving substantial benefits.

The government was therefore correct to conclude that on expiry of the Transitional Period the maintenance of the VAT RES would have been in breach of Article I:1. The same applied to ESC 9.1. The government had a duty under ArticleI:1 of immediate and unconditional rectification that precluded, for example, a transitional period.

It was not relevant that Northern Ireland retained the VAT RES under the Northern Ireland Protocol.

Ground 3 (paras. 218–239)

The appellants argued it was inconsistent of the government to take the position the VAT RES and ESC 9.1 were lawful under the GATT prior to the expiry of the Transitional Period, because of the free trade agreement with the EU, but unlawful following expiry of the Transitional Period even though they had concluded the TCA. Furthermore, the possibility of a free trade agreement should have been taken into account when the decisions on abolition were being taken.

The Court considered it made no sense that, having entered into the TCA, the prohibition on discrimination in ArticleI:1 no longer applied.

It also concluded it could not have been an error to fail to have regard for measures which were in negotiation but might never come into force. The government wanted a solution which was lawful under any permutation of outcome.

Permission to amend was refused.

Ground 4 (paras. 240–310)

The appellants claimed the decision to abolish was announced in the consultation response document (CR) published on 11 September 2020 in clear and definitive terms and thereafter a predetermined trajectory was followed, driven by confirmation bias.

In the period prior to publication of the CR the analysis of the government was inadequate and failed to address the Wider Economic Impact. The government therefore did not have the evidence it needed in order to take this far reaching decision and it failed in its duty to conduct due inquiries needed to put itself in the position whereby it could take a rational decision. Having established the decision maker had failed to arm itself with the relevant evidence, the decision should be set aside.

It was argued for the government that, subsequent to the CR, and in response to strong representations by stakeholders, including the submission of a Cebr Report (Centre for Economic and Business Research) for Global Blue, a review did occur of the evidence and the Cebr report was put before the Chancellor. The Chancellor had asked the OBR (Office for Budget Resonsibility) to set out an independent assessment of the fiscal impact of the intended abolition and updated advices were put to the Chancellor including a narrative summary of stakeholder concerns. The case put before the decision maker was therefore fair and balanced.

The court held there was no statutory guidance on the matters the Government had to either, take into account or, preclude and therefore the limits on its powers were governed by ordinary principles of rationality. The present decision involved a balancing and reconciling of a variety of potentially conflicting objectives and considerations that were not easy to quantify accurately. A broad margin of judgement or discretion should therefore be afforded the decision maker.

The decision-making process leading up to the abolition was characterised by the Government seeking and obtaining relevant evidence and conducting a proper balancing exercise.

Although the court found some merit in the appellants claims relating to mathematical errors, described by the government as differences in approach, they agreed with the government that none of these had any material impact on the final decision.

The permission to appeal was therefore refused.

Undue Delay (paras. 311–315)

Finally the court rejected the contention the appellants were guilty of undue delay. This was a case of real complexity served within the requisite limitation period and without prejudice to the Government.

None of the grounds of appeal succeeded, and therefore the appeal seeking permission to seek judicial review, the claim for judicial review, and all associated applications failed.

Comment

This was an incredibly complex case with detailed consideration of the scope and powers of the government when considering a change in policy, in this case the abolition of tax-free shopping for non-EU travellers and tourists post Brexit.

Although the appellants were able to point to a number of inconsistencies and potential deficiencies in the decision-making process none of these were sufficiently material to impact the final decision or, in the view of the court, fell outside the margin of judgement and discretion of the Chancellor.

Daniel Beard QC, Brendan McGurk, Lucas Bastin, Jack Williams (instructed by Freshfields Bruckhaus Deringer LLP) appeared for the appellants

Eleni Mitrophanous QC, Naina Patel, Raj Desai, Stephen Donnelly (instructed by HMRC Solicitors Office) appeared for the respondents

APPROVED JUDGMENT
Lord Justice Green :
A. Introduction: The Issues
(i) The Abolition of Tax (or VAT) Free

[1] As of 1st January 2021, the Government abolished most “tax (or VAT) free” shopping. This affected major airports and retailers who sold tax (or VAT) free items from airport lounges, and certain high street retailers who sold popular luxury branded items often to wealthy visitors from China, South East Asia and the Gulf. The decision was taken as part of a review of fiscal and customs arrangements affected by the expiry of the transitional period governing relations between the UK and EU following the exit of the UK from the EU which occurred at 11pm 31st December 2020 (“the...

To continue reading

Request your trial
4 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT