R (on the application of Minister for Economic Development of Jersey) v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 2012 |
| Neutral Citation | [2012] EWHC 718 (Admin) |
| Date | 15 March 2012 |
| Court | Queen's Bench Division (Administrative Court) |
[2012] EWHC 718 (Admin).
Queen's Bench Division (Administrative Court).
Mitting J.
David Vaughan QC and Conrad McDonnell (instructed by PwC Legal) for the States of Jersey.
Sam Grodzinski QC and David Yates (instructed by Law Offices of the Crown) for the States of Guernsey.
Philippa Whipple QC, Jessica Simor and Suzanne Lambert (instructed by HMRC Solicitor's Office) for HMRC.
Christopher Vajda QC, Valentina Sloane and Julianne Stevenson (instructed by Edwin Coe) for RAVAS.
The following cases were referred to in the judgment:
Direct Cosmetics Ltd v C & E CommrsECASECAS (Joined Cases C-138/86 and C-139/86) (1988) 3 BVC 354; [1988] ECR 3937
Har Vaessen Douane Service BV v Staatssecretaris van Financiën (Case C-7/08) [2009] ECR I-5581
Liversidge v AndersonELR [1942] AC 206
Marks & Spencer plc v C & E CommrsECASVAT (Case C-309/06) [2008] BVC 577; [2008] ECR I-2283
Offene Handelgesellschaft in Firma Werner Faust v EC CommissionECAS (Case 52/81) [1982] ECR 3745
OTO SpA v Ministero delle FinanzeECAS (Case C-130/92) [1994] ECR I-3281
R & C Commrs v Rank Group plcECASECASVAT (Joined Cases C-259/10 and C-260/10) [2011] BVC 389
Value added tax - EU law - Low value consignment relief (LVCR) - UK proposing draft clause in Finance Bill restricting LVCR for goods imported from the Channel Islands by mail order - Whether restriction lawful under EU law - Council Directive 2006/112, eu-directive 2006/112 article 6 article 131 article 143art. 6, 131, 143(b), (c) - Council Directive 2009/132, eu-directive 2009/132 article 1 article 23art. 1, 23.
This was an application by the bailiwicks of Jersey and Guernsey for a declaration that a draft clause to be included in the Finance Bill 2012, providing that low value consignment relief (LVCR) would not apply in relation to any goods sent from the Channel Islands under a "distance selling arrangement", would, if enacted, be unlawful under EU law.
The bailiwicks of Jersey and Guernsey were part of the Customs territory of the EU but not part of a member state, the UK, for VAT purposes (Council Directive 2006/112, art. 6(1)). The importation of goods into the UK from the Channel Islands was regarded as importation of goods and was a taxable supply unless specifically exempt. Articles 1 and 23 of Council Directive 2009/132 and art. 131 and 143 of the 2006 VAT Directive required member states to exempt from tax the importation of goods of low value from the Channel Islands.
Under art. 23 of the 2009 Directive, member states had to exempt the importation from the Channel Islands of goods worth less than 10 euros and might exempt goods so imported worth less than 22 euros ("low value consignment relief" (LVCR)). The UK gave effect to LVCR by art. 5(1) of and Sch. 2, Grp. 8, item 8 to the Value Added Tax (Imported Goods) Relief Order 1984 (SI 1984/746). However, by a proviso to art. 23 member states could exclude from the exemption goods which had been imported on mail order.
In November 2011, the UK Chancellor of the Exchequer announced that LVCR would not apply in relation to any goods sent from the Channel Islands under a "distance selling arrangement" on or after 1 April 2012, and a clause to that effect was included in the Finance Bill 2012.
The Channel Islands applied for a declaration that the proposed clause would, if enacted, be unlawful under EU law. They submitted that the proviso to art. 23 did not permit selective disapplication, either by reference to categories of goods or territories; and that selective disapplication of the proviso offended against the principles of fiscal neutrality and non-discrimination and of proportionality.
Held, dismissing the application:
1.The description of distance selling arrangements in the draft clause appeared to be synonymous with "mail order" in art. 23. The legislative technique in the 2009 Directive was to lay down mandatory rules for exemption and then to provide limited discretions to member states to limit or revoke them. Article 23 conferred a discretion on member states unfettered by any express words. Subject to art. 1, the extent to which the importation of goods of low value might give rise to avoidance or abuse or to distortion of the market was conclusively determined by art. 23. Member states could not only invoke the mail order proviso if they had first confined the exemption to goods worth less than 10 euros. Member states could achieve the removal of the exemption by not allowing it for mail order goods between 10 and 22 euros and by removing the exemption for mail order goods below 10 euros.
2.Channel Island traders were doing no more and no less than exploiting a fiscal advantage established by clear words of general application in EU legislation for their own profit. They were doing nothing beyond accepting orders from customers and supplying them, in the ordinary course of their trade. The fiscal advantage afforded by LVCR gave them an economic incentive to conduct that trade from the Channel Islands, but it was not abusive for them to do so; and, because VAT on importation was payable by the consignee, they, as opposed perhaps to their customers, had not avoided VAT by so doing.
3.The EU and, by necessary extension, member states, when permitted to do so or not prohibited from doing so by EU legislation, might, for any reason or none, discriminate against non-EU states in relation to the import of goods from them; even in the field of indirect taxation. The principle of fiscal neutrality was not, therefore, engaged in that context. There was no requirement that the UK should treat one non-EU territory in the same manner for the purposes of LVCR as any other, or as every other. For the same reasons, the principle of proportionality was also not engaged. (Offene Handelgesellschaft in Firma Werner Faust v EC Commission (Case 52/81) [1982] ECR 3745 and OTO SpA v Ministero delle Finanze (Case C-130/92) [1994] ECR I-3281 applied.)
4.Thus there was no principle of EU law which required the UK to treat the importation of low value goods on mail order from the Channel Islands in the same manner as similar goods from any other non-EU territory. Further, there was nothing in the language of art. 23 to prohibit a selective disapplication of the proviso. If there was nothing in the basis of EU law to prohibit a selective disapplication, there was no reason to construe the words narrowly so as to achieve that result and the court declined to do so. Accordingly, the draft clause in the Finance Bill 2012 was not unlawful under EU law.
Mitting J:
[1]The European Union is a complex organism. Some territories are part of the Union for some purposes, but not for others. The bailiwicks of Jersey and Guernsey (the Channel Islands) are part of the customs territory of the Union, but are not part of the territory of a member state, the United Kingdom, for the purposes of VAT; see Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the Principal VAT Directive), eu-directive 2006/112 subsec-or-para 1 article 6art. 6(1).
[2]The importation of goods into the territory of member states is subject to VAT: eu-directive 2006/112 subsec-or-para 1 article 2art. 2(1)(d). The entry into the territory of a member state of goods coming from the Channel Islands is to be regarded as importation of goods: eu-directive 2006/112 article 30art. 30, second paragraph. Accordingly, it is a taxable supply, unless exempted under Title IX.
[3]Article 131 requires member states to apply the exemptions set out in Title IX, subject to conditions:
[4]"The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse."
[5]eu-directive 2006/112 article 143Article 143 requires member states to exempt from tax the importation of goods of low value from the Channel Islands. This is achieved by art. 143(b) and (c) and eu-directive 2009/132 article 23art. 23 of Council Directive 2009/132/EC of 19 October 2009 determining the scope of art. 143(b) and (c) of the Principal VAT Directive as regards exemption from VAT on the final importation of certain goods (the 2009 Directive):
Member States shall exempt the following transactions …
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(b) the final importation of goods governed by Council Directives … 83/181/EEC …
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(c) the final importation of goods, in free circulation from a third territory forming part of the Community customs territory, which would be entitled to exemption under point (b) if they had been imported within the meaning of the first paragraph of Article 30.
[6]Article 143(b) refers to Council Directive 83/181/EEC of 28 March 1983 which was replaced with effect from 30 November 2009 by the 2009 Directive and is now to be taken to refer to the latter.
[7]Articles 1 and 23 of the 2009 Directive provide:
Article 1
The scope of the exemptions from value added tax (hereinafter VAT) referred to in Article 143(b) and (c) of Directive 2006/112/EC and the rules for their implementation, referred to in Article 145 of that Directive, shall be defined by this Directive.
In accordance with Article 131 and Article 143(b) and (c) of Directive 2006/112/EC, the Member States shall apply the exemptions laid down in this Directive under the conditions fixed by them in order to ensure that such exemptions are correctly and simply applied and to prevent any evasion, avoidance or abuses.
Article 23
Goods of a total value not exceeding EUR 10 shall be exempt on admission. Member States may grant exemption for imported goods of a total value of more than EUR 10, but not exceeding EUR 22.
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