Philippa Whipple QC and Suzanne Lambert represented HM Revenue and Customs and HM Treasury in their successful defence of a judicial review challenge brought by the States of Jersey and Guernsey against the Government’s decision to abolish relief from VAT on goods of small value imported from the Channel Islands into the UK under “LVCR” (low value consignment relief).
The Channel Islands are outside the European Union for the purposes of VAT. They therefore can, at present, benefit from LVCR. However, the value of goods imported tax-free from the Channel Islands and benefiting from this relief has grown to approximately ｣644m per annum in 2011, across a wide range of imported goods, including CDs and DVDs, flowers, plants, electrical and computer accessories. The volume and range of imports has caused significant problems for UK traders, who have been forced to compete against tax-free Channel Islands imports.
Jersey and Guernsey brought a pre-emptive challenge against the proposed legislation, seeking a declaration that it was contrary to EU law. The essence of the challenge was that the UK Government had no power to disapply LVCR in relation to imports from the Channel Islands, whilst retaining it for imports from other countries outside the EU.
In finding for HM Treasury and HM Revenue and Customs, Mitting J held that there was no principle of EU law which prevented disapplication of LVCR in relation to some countries but not others. Member States are not required to treat all non-EU countries equally in relation to matters concerning VAT. He agreed that the proposed legislation was authorised by article 23 of Directive 2009/132/EC and he declined to construe that provision narrowly in the way contended for by Jersey and Guernsey. The proposed legislation was, therefore, not unlawful or contrary to EU law principles of fiscal neutrality, non-discrimination or proportionality.
Following Budget Day on 21 March 2012, the draft legislation will be the subject of a resolution under the Provisional Collection of Taxes Act 1968. From 1 April 2012, imports from the Channel Islands will no longer benefit from the LVCR exemption and will be subject to VAT.
This is an important victory for the UK Government, which is committed to preventing the distortion of competition in the UK market caused by LVCR imports from the Channel Islands, and the associated tax loss to HM Treasury.
Mitting J granted Jersey and Guernsey permission to appeal. If this case continues on appeal, the likelihood must be that it will be the subject of a reference to the Court of Justice for the European Union (CJEU).