Totel Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Irwin,Lord Justice Henderson |
| Judgment Date | 20 December 2016 |
| Neutral Citation | [2016] EWCA Civ 1310 |
| Docket Number | Case No: A3/2015/1980 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2016 |
[2016] EWCA Civ 1310
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Nugee
FTC 67/2013
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Irwin
and
Lord Justice Henderson
Case No: A3/2015/1980
Michael Firth (instructed by Morrisons Solicitors LLP) for Totel
Jonathan Swift QC and Rachel Kamm (instructed by General Counsel and Solicitor to Her Majesty's Revenue and Customs) for HMRC
Hearing dates: 21 – 22 November 2016
Approved Judgment
Issue on this appeal
The appellant ("Totel") is a VAT-registered trader. The respondents ("HMRC") have determined that Totel is liable to pay sums amounting to £1,474,351.38, said to have been wrongly treated as inputs in Totel's VAT returns. Totel wishes to appeal this determination to the First-tier Tribunal ("FTT"). VAT appeals, by which I mean any appeal from a determination of HMRC that a person is liable to pay any sum on account of VAT, are subject to a "prepayment rule": that means that before a taxpayer can appeal, he must first pay the tax in issue. There is no similar requirement for income tax appeals or appeals about some indirect taxes such as stamp duty land tax ("SDLT").
Totel contends that the prepayment rule for VAT appeals infringes EU law: VAT is derived from EU law and remedies for overpayment must comply with EU law principles, such as the principle of "equivalence", which I explain in paragraphs 7 to 8 below. Totel did not rely on this principle before the Upper Tribunal, and so the Upper Tribunal (Nugee J) did not consider it in its decision dated 27 October 2014, from which this appeal is brought. However, the Upper Tribunal gave permission to appeal on this point because, being a properly arguable point of EU law, the question is one which this Court must consider.
As I explain under Reasons for dismissing this appeal, I would dismiss this appeal. If Totel is right, and VAT appeals should be treated as equivalent to other tax appeals, Totel's case is undermined by the fact that the prepayment rule applies to a number of indirect tax appeals. If HMRC are right, and VAT is not to be compared with any other tax, then there is no need to apply the equivalence principle. On either basis, a comparison with income tax and SDLT appeals is inappropriate.
I first briefly outline the rules about paying tax when appealing and the equivalence principle, and then set out the parties' respective submissions.
When must a taxpayer pay the tax before he can appeal?
In outline, the position is follows:
(i) Prepayment not generally required: There is no general rule in domestic law that a taxpayer must pay the tax in dispute before appealing to the FTT.
(ii) Prepayment rule applicable to certain indirect taxes including VAT: The prepayment rule applies in VAT appeals (see section 84(3) VAT Act 1994 (" VATA"), set out in appendix 1 to this judgment) and in other appeals about indirect taxes, including those listed in appendix 2 to this judgment. There are other indirect taxes to which the prepayment rule does not apply, such as SDLT (see Finance Act 2003, schedule 10, paragraph 39).
(iii) Hardship applications (applicable to VAT): an appellant may apply for the payment of VAT to be deferred pending an appeal by making a "hardship" application and showing that the payment of the VAT in dispute would cause him to suffer hardship: section 83 (4B) VATA. This limited exception to the prepayment rule has been held on the facts not to be available to Totel and there is no appeal on that point. There is materially identical provision for hardship applications in respect of each of the other indirect taxes listed in appendix 2 to this judgment.
(iv) Postponement applications (not applicable to VAT): The payment of (for example) income tax and SDLT can be postponed if the taxpayer appeals and shows reasonable grounds for appealing (see section 55(6) of the Taxes Management Act 1970 and paragraph 39 (6) of schedule 10 to the Finance Act 2003). This is a different test than that which applies on a hardship application and it is common ground that it imposes a low hurdle in practice.
(v) Taxpayers' appeals to the Upper Tribunal from the FTT: the principle that an appeal does not stay enforcement of a judgment applies. If a taxpayer loses his appeal to the FTT and wishes to appeal to the UT, he will be liable to pay the tax in issue unless he obtains a stay of execution (see Rule 5(3)(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009; and Rule 5(3)(m) of the Tribunal Procedure (Upper Tribunal) Rules 2008). To obtain a stay, the taxpayer may have to show that without a stay a further appeal will be stifled. Even then, the tribunal has a discretion to grant or withhold a stay having regard to all the circumstances.
The equivalence principle
Basing himself on long-standing jurisprudence of the Court of Justice of the European Union ("CJEU", which term includes where appropriate its predecessor court), Lord Hope described the equivalence principle in Test Claimants in the FII Group Litigation v Revenue and Customs Comrs (formerly Inland Revenue Comrs) [2012] 2 AC 337 at [21] as follows:
The principle of equivalence requires that the rules regulating the right to recover taxes levied in breach of EU law must be no less favourable than those governing similar domestic actions.
In general, the application of the equivalence principle involves a two-stage process: identifying the similar domestic action and then, if that domestic action is governed by different procedural rules, examining the justification for the difference. According to the jurisprudence of the CJEU, it is for national courts to determine whether domestic actions are similar, and similarity is to be assessed with regard to the domestic action's purpose, cause of action and essential characteristics (see Pontin v T Comlux SA ( C-63/08) [2009] E.C.R. I-10467 at [45]; Palmisani v Istituto Nazionale della Previdenza Sociale (INPS) ( C-261/95) [1997] E.C.R. I-4025, [38]; Preston v Wolverhampton Healthcare NHS Trust (No 2) [2001] 2 AC 455).
So far there is common ground. A number of other issues arise on this appeal about the equivalence principle which are contentious. There is an issue whether there is any clear test as to when a domestic action will be similar for this purpose. There is also an issue about the application of the equivalence principle in the field of tax; particularly whether VAT can be compared with either other indirect taxes or direct taxes, such as income tax. In Marks & Spencer v Customs and Excise Commissioners [1999] STC 205at 232, Moses J held that the equivalence principle only required a comparison between domestic law claims to recover VAT and claims subject to EU law ("EU-derived" claims) to recover VAT, not between VAT and any other tax. It is contended that this is no longer good law because the proper analysis of all claims to recover VAT now is that they are no longer solely based on domestic law, and that some other comparator action must be found.
There is another separate facet of the equivalence principle in issue on this appeal, namely the jurisprudence of the CJEU to the effect that the equivalence principle does not require a member state to extend its most favourable rules to actions to enforce EU rights, provided it does not single out EU-derived claims for the most unfavourable treatment (see, for example, Littlewoods Retail Ltd v Revenue and Customs Commissioners ( C-591/10) [2012] S.T.C. 1714 at [31]). I refer to this below as the "no 'most favourable treatment' proviso". Thus the CJEU has held that the member state can apply less favourable rules to claims for the recovery of tax than those which it applies to private law claims for the recovery of debts: Edilizia Industriale Siderurgica Srl (EDIS) v Ministero delle Finanze ( C231/96) [1998] ECR I-4951, [37]. The CJEU there held:
37 Thus, Community law does not preclude the legislation of a Member State from laying down, alongside a limitation period applicable under the ordinary law to actions between private individuals for the recovery of sums paid but not due, special detailed rules, which are less favourable, governing claims and legal proceedings to challenge the imposition of charges and other levies. The position would be different only if those detailed rules applied solely to actions based on Community law for the repayment of such charges or levies.
There is an issue as to whether the no "most favourable treatment" proviso applies in the circumstances of this case.
Submissions of Totel
The principal submissions of Mr Michael Firth, for Totel, are summarised in the paragraphs which follow.
Similarity to other domestic actions may be confined to relevant characteristics:
Similarity needs to be shown only in relation to the characteristics of a tax claim relevant to an appeal: see, for example, Lindorfer v Council of the European Union ( C-227/04 P) [2007] E.C.R. 6767, a sex discrimination case, where both the CJEU and Advocate General Sharpston (particularly at [24]) simply compared the provisions setting out different actuarial factors for men and women when calculating transfer credits from one pension scheme to another, and not the totality of the terms of the pension schemes.
For the proposition that only relevant aspects of potentially similar actions need be compared, Mr Firth also cites the speech of Lord Slynn in Preston at paragraphs 21 to 23 and 30. However, it is not necessary to refer to these passages, as this was a decision of the House of Lords, and not the CJEU, and further Lord Slynn's conclusion differed...
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