The Supreme Court in Zipvit v HMRC  UKSC 15 has referred four questions to the Court of Justice of the European Union ('Court of Justice'). It found that the meaning of ‘due or paid’ in article 168(a) and the requirement for a VAT invoice in article 220 of the Principal VAT Directive 2006/112/EC was not ‘acte clair’.
This is a lead case with a large number of other cases standing behind it, and the total amount of tax at stake is estimated at up to £1 billion. Both HMRC and taxpayers in the same position as Zipvit would no doubt require clarity on the issues.
It is also noteworthy to see a reference to the Court of Justice during the Brexit implementation period, a time when the UK is no longer an EU Member State but when it must still adhere to the jurisdiction of the Court of Justice in accordance with the Withdrawal Agreement.
Zipvit used Royal Mail to supply vitamins and minerals to its customers during 2006 to 2010. The agreement between Zipvit and Royal Mail required Zipvit to pay for Royal Mail’s services plus VAT (if any). Royal Mail did not charge VAT on the services as it was believed at the time that its services were exempt within Directive 2006/112/EC, art 132(1)(a) which reads:
Member States shall exempt the following transactions:
- (a) the supply by the public postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto;
Subsequently, the Court of Justice in TNT Post C-357/07 held that the services provided by Royal Mail should have been standard rated.
Zipvit, therefore, made claims for input VAT on the basis that the price it paid for Royal Mail’s services should be treated as including VAT. HMRC refused the claims for input VAT.
Zipvit's appeals were dismissed by the First-tier Tax Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal. Zipvit appealed further to the Supreme Court.
Zipvit's argument at the Supreme Court
Zipvit’s asserted that the commercial price it paid for Royal Mail’s services should be treated as including an element of VAT; that it was entitled to deduct that VAT as it was either ‘due’ or ‘paid’ within Directive 2006/112/EC, art 168(a), and although it did not have a VAT invoice, it met the substantive requirements of Directive 2006/112/EC to claim that input VAT so alternative evidence of the VAT should be sufficient
HMRC’s response at the Supreme Court
HMRC contended that the Directive 2006/112/EC does not allow taxpayers to amend historical actions; Zipvit would gain an unmerited financial windfall if its claim succeeded; such a claim would violate the principle of fiscal neutrality as the input VAT that Zipvit claims to deduct was never paid into the public purse; where there is a contract that requires VAT to be paid in addition to the commercial price, VAT is only paid when the VAT due in respect of the commercial price is actually paid; in Zipvit’s case it had not been paid. VAT can only be regarded as due when there is an enforceable claim to collect it from the trader, but here there was no such claim against Zipvit; asymmetrical reliance on the directive (where a trader takes advantage of an exemption but also seeks to deduct input VAT on those supplies) is not permitted, and in the circumstances of the case, a valid claim for deduction of input tax cannot be made in the absence of a VAT invoice
The questions referred to the ECJ
The Supreme Court held that neither the due and paid issue, nor the invoice issue, were ‘acte clair’ and referred four questions to the Court of Justice, at paragraph 42:
"In these circumstances, the court refers the following questions to the Court of Justice:
(1) Where (i) a tax authority, the supplier and the trader who is a taxable person misinterpret European VAT legislation and treat a supply, which is taxable at the standard rate, as exempt from VAT, (ii) the contract between the supplier and the trader stated that the price for the supply was exclusive of VAT and provided that if VAT were due the trader should bear the cost of it, (iii) the supplier never claims and can no longer claim the additional VAT due from the trader, and (iv) the tax authority cannot or can no longer (through the operation of limitation) claim from the supplier the VAT which should have been paid, is the effect of the Directive that the price actually paid is the combination of a net chargeable amount plus VAT thereon so that the trader can claim to deduct input tax under article 168(a) of the Directive as VAT which was in fact “paid” in respect of that supply?
(2) Alternatively, in those circumstances can the trader claim to deduct input tax under article 168(a) of the Directive as VAT which was “due” in respect of that supply?
(3) Where a tax authority, the supplier and the trader who is a taxable person misinterpret European VAT legislation and treat a supply, which is taxable at the standard rate, as exempt from VAT, with the result that the trader is unable to produce to the tax authority a VAT invoice which complies with article 226(9) and (10) of the Directive in respect of the supply made to it, is the trader entitled to claim to deduct input tax under article 168(a) of the Directive?
(4) In answering questions (1) to (3):
(a) is it relevant to investigate whether the supplier would have a defence, whether based on legitimate expectation or otherwise, arising under national law or EU law, to any attempt by the tax authority to issue an assessment requiring it to account for a sum representing VAT in respect of the supply?
(b) is it relevant that the trader knew at the same time as the tax authority and the supplier that the supply was not in fact exempt, or had the same means of knowledge as them, and could have offered to pay the VAT which was due in respect of the supply (as calculated by reference to the commercial price of the supply) so that it could be passed on to the tax authority, but omitted to do so?
HAMMAD BAIG © 2020
33 BEDFORD ROW
Hammad practices tax law and commercial litigation with a specific interest in VAT and Customs and Excise Law.
Further articles on topics relating to Hammad's practice areas, can be read under his Insights, and on Hammad’s blog. Should you wish to instruct Hammad, then please do not hesitate to contact his clerk Mark Byrne.
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.