JUDGMENT
Totel Ltd (Appellant) v Commissioners for Her
Majesty’s Revenue and Customs (Respondent)
before
Lady Hale, President
Lord Sumption
Lord Carnwath
Lord Hodge
Lord Briggs
JUDGMENT GIVEN ON
26 July 2018
Heard on 25 and 26 April 2018
Appellant Respondent
Michael Firth Jonathan Swift QC
Katherine Eddy
(Instructed by Morrisons
Solicitors LLP
)
(Instructed by HMRC
Solicitor’s Office
(Salford)
)
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LORD BRIGGS: (with whom Lady Hale, Lord Sumption, Lord Carnwath
and Lord Hodge agree)
Introduction
1. Traders who wish to appeal against assessments to Value Added Tax
(“VAT”) in the United Kingdom are required, by section 84 of the Value Added Tax
Act 1994, first to pay or deposit the tax notified by the assessment with HMRC,
unless they can demonstrate that to do so would cause them to suffer hardship.
Otherwise, their appeal will not be entertained. This “pay-first” requirement is a
feature of the procedural regime for appealing assessments to a number of other
types of tax, including Insurance Premium Tax, Landfill Tax, Climate Change Levy
and Aggregates Levy. But it is not a condition for appealing assessments to Income
Tax, Capital Gains Tax (“CGT”), Corporation Tax or Stamp Duty Land Tax
(“SDLT”).
2. VAT is, in the UK and elsewhere in the European Union, regulated by the
provisions of EU Directives, currently of VAT Directive 2006/112. An appeal
against an assessment to VAT is therefore a claim based on EU law. All the other
taxes and levies referred to above are regulated by domestic law, so that appeals
against assessments to any of them are based on domestic law.
3. The appellant Totel Ltd (“Totel”) seeks to appeal a number of assessments to
VAT but has been unable to demonstrate that a requirement to pay or deposit the tax
in dispute would cause it hardship. But Totel claims that the requirement to pay or
deposit the disputed tax as a condition for its appeals being entertained offends
against the EU law principle of equivalence. In outline, this principle requires that
the procedural rules of member states applicable to claims based on EU law are not
less favourable than those governing similar domestic claims. It is submitted that
appeals against assessment to Income Tax, CGT and SDLT are claims which are
similar to appeals against assessment to VAT and that, because a VAT appeal is
subjected to the pay-first requirement whereas those other appeals are not, then the
UK’s procedural rules for VAT appeals are less favourable than those governing
similar domestic claims.
4. In the course of a convoluted but irrelevant procedural history Totel first
raised its challenge based upon the principle of equivalence when (successfully)
seeking permission to appeal from the Upper Tribunal (Tax and Chancery Chamber)
to the Court of Appeal. In December 2016 the Court of Appeal rejected that
challenge on two grounds. Logically the first (although the second to be dealt with
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in the leading judgment of Arden LJ) was that none of the domestic taxes (Income
Tax, CGT and SDLT) relied upon by Totel were true comparators with VAT for the
purpose of the application of the principle of equivalence. The second ground was
that, even if they were, there were other domestic taxes (namely those described in
para 1 above) which subjected appeals against assessments to the same pay-first
requirement, so that it could not be said that EU-derived VAT appeals had been
picked out for the worst procedural treatment. Accordingly, what is commonly
called the “no most favourable treatment proviso” (“the Proviso”) applied so as to
prevent infringement of the principle of equivalence.
5. In this court Totel challenges both those conclusions of the Court of Appeal.
For their part, HMRC challenge (for the first time) the underlying assumption that,
when viewed in the round, the procedure for appeals against tax assessments is
rendered less favourable to the taxpayer by the imposition of the pay-first
requirement in relation to only some of them.
6. The principle of equivalence and its qualifying Proviso are creatures of the
jurisprudence of the CJEU (and its predecessors), and take effect within the general
context that it is for each member state to establish its own national procedures for
the vindication of rights conferred by EU law: see EDIS v Ministero delle Finanze
(Case C-231/96) at paras 19 and 34 of the judgment. Further, it has been repeatedly
stated by the CJEU that it is for the courts of each member state to determine whether
its national procedures for claims based on EU law fall foul of the principle of
equivalence, both by identifying what if any procedures for domestic law claims are
true comparators for that purpose, and in order to decide whether the procedure for
the EU law claim is less favourable than that available in relation to a truly
comparable domestic claim. This is because the national court is best placed, from
its experience and supervision of those national procedures, to carry out the requisite
analysis: see Palmisani v Istituto Nazionale della Previdenza Sociale (Case C-261/95) at
para 38, and Levez v TH Jennings (Harlow Pools) Ltd (Case C-326/96) [1999] ICR 521,
para 43.
The search for a true comparator
7. The principle of equivalence works hand in hand with the principle of
effectiveness. That principle imposes a purely qualitative test, which invalidates a
national procedure if it renders the enforcement of a right conferred by EU law either
virtually impossible or excessively difficult. By contrast, the principle of
equivalence is essentially comparative. The identification of one or more similar
procedures for the enforcement of claims arising in domestic law is an essential prerequisite for its operation. If there is no true comparator, then the principle of
equivalence can have no operation at all: see the Palmisani case, at para 39. The
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identification of one or more true comparators is therefore the essential first step in
any examination of an assertion that the principle of equivalence has been infringed.
8. Plainly, the question whether any, and if so which, procedures for the pursuit
of domestic law claims are to be regarded as true comparators with a procedure
relating to an EU law claim will depend critically upon the level of generality at
which the process of comparison is conducted. Is it sufficient that both claims are
tax appeals, or (as Totel submits) appeals against the assessment of tax, or that they
must both be made to the same tribunal? Or is it necessary to conduct some more
granular analysis of the different claims, and the economic structures in which they
arise? Or is there some simple yardstick which would prevent claims from being
truly comparable, such as, in the present case, the difference between claims arising
out of the assessment of liability to direct and indirect taxes, (as HMRC submits)?
Decisions of the CJEU provide considerable assistance in identifying the correct
approach to this task, although the guidance to be gained from some of them is not
always that which springs from an over- simplistic analysis of particular
phraseology.
9. First, the question whether any proposed domestic claim is a true comparator
with an EU law claim is context-specific. As Lord Neuberger put it in Revenue and
Customs Comrs v Stringer [2009] UKHL 31; [2009] ICR 985 at para 88:
“It seems to me that the question of similarity, in the context of
the principle of equivalence, has to be considered by reference
to the context in which the principle is being invoked.”
This proposition was not in dispute between counsel, and it is therefore unnecessary
to cite decisions of the CJEU in support of it, although most of those to which
reference is made below illustrate or mandate the conduct of a context-specific
enquiry.
10. The domestic court must focus on the purpose and essential characteristics of
allegedly similar claims: see the Levez case, at para 43 of the judgment:
“In order to determine whether the principle of equivalence has
been complied with in the present case the national court –
which alone has direct knowledge of the procedural rules
governing actions in the field of employment law – must
consider both the purpose and essential characteristics of
allegedly similar domestic actions.”
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To the same effect is para 35 of the judgment of the Grand Chamber in Transportes
Urbanos y Servicios Generales SAL v Administración del Estado (Case C-118/08).
In Littlewoods Retail Ltd v Revenue and Customs Comrs (Case C-591/10) [2012]
STC 1714, the Court at para 31 used the phrase “similar purpose and cause of
action”, without in my view thereby intending to change the underlying meaning
from that described in the earlier cases.
11. Of particular importance within the relevant context is the specific procedural
provision which is alleged to constitute less favourable treatment of the EU law
claim. This is really a matter of common sense. Differences in the procedural rules
applicable to different types of civil claim are legion, and are frequently attributable
to, or at least connected with, differences in the underlying claim. A common
example is to be found in different limitation periods. Thus, in England and Wales,
the primary limitation period for personal injury claims is three years, whereas the
primary limitation period for most other claims is six years. There is a 20 year
prescription period for property claims in Scotland. To treat personal injury and, for
example, property claims as true comparators for the purpose of deciding whether
the shorter limitation period for personal injury claims constituted less favourable
treatment would make no sense. This is because it is no part of the purpose of the
principle of equivalence to prevent member states from applying different
procedural requirements to different types of claim, where the differences in those
procedural requirements are attributable to, or connected with, differences in the
underlying claims.
12. Mr Michael Firth for Totel drew the court’s attention to some passages in
European authorities which, he submitted, justified addressing the similarity
question at a very high level of generality, in support of his broad submission that
all UK appeals against tax assessments are true comparators with an appeal against
a VAT assessment. He relied, for example, on the following passage in the court’s
judgment in the Transportes Urbanos case, at para 36:
“As regards the purpose of the two actions for damages referred
to in the previous paragraph, the Court notes that they have
exactly the same purpose, namely compensation for the loss
suffered by a person harmed as a result of an act or omission of
the State.”
Accordingly, he submitted, all claims against the state for compensation for loss
were, at least in principle, capably of being truly comparable for the purposes of the
principle of equivalence. Taken out of context, that citation might appear at first
sight to support Mr Firth’s submission, but a closer analysis of that case shows that
it does nothing of the kind. The claimant complained that it had been over-charged
to VAT, and its consequential loss could be remedied if either the charge in question
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was contrary to European law, or if it was contrary to the Spanish Constitution. In
the former case Spanish procedural law imposed a condition requiring prior
exhaustion of remedies, whereas it did not for the latter. The alternative claims were
held to be true comparables for the purposes of the principle of equivalence not
because they were both, viewed in the abstract, claims against the state for
compensation for loss, but because they were alternative legal bases for claiming
compensation for precisely the same loss. This is, in particular, apparent from para
43 of the Court’s judgment. Alternative types of claim for compensation for exactly
the same loss are a common example of true comparators: see eg Preston v
Wolverhampton Healthcare NHS Trust (No 2) [2001] 2 AC 455.
13. For his part, Mr Jonathan Swift QC for HMRC submitted that dicta in
European and domestic authority justified a conclusion that there could never be a
true comparator with an appeal against a VAT assessment, apart from some other
assessment to VAT. In short, he submitted that VAT, and all claims relating to it,
were sui generis, with no true comparator arising from any other type of tax. He
began with the following dictum of Moses J in Marks & Spencer plc v Comrs of
Customs and Excise [1999] 1 CMLR 1152, a case in which a limitation period for
the recovery of overpaid VAT was alleged to offend the principle of equivalence.
At paras 61-62 he said:
“In my judgment no comparison can be made with other types
of tax such as income tax payable in respect of an individual’s
profits or the tax on a document imposed by stamp duty. Other
forms of indirect taxation, such as excise duty, are wholly
different types of tax.
It seems to me that the jurisprudence of the European Court of
Justice, exemplified in EDILIZIA, requires a comparison
between the approach of a member state to the recovery of tax
charged in breach of Community rules and the recovery of the
same tax in breach of domestic rules. Any wider enquiry would
invite unnecessary argument as to whether there is a true
comparison.” (My emphasis)
Referring to the principle of equivalence, he concluded:
“The principle is designed to protect Community law rights:
adequate protection is afforded by focusing upon the way a
member state deals with the same tax in a domestic as opposed
to Community context.”
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14. The difficulty with this analysis, as Mr Firth pointed out, is that (as Mr Swift
agreed) all claims to recover overpaid VAT are necessarily based on EU law,
because VAT is a tax regulated by EU law. Moses J’s analysis was approved by the
Court of Appeal in Littlewoods Ltd v Revenue & Customs Comrs (CA) [2015]
EWCA Civ 515; [2016] Ch 373, paras 133-134 in the judgment of Arden LJ. But it
appears that her analysis was based on the same concession, namely that there could
be purely domestic claims for recovery of overpaid VAT.
15. Mr Swift obtained more persuasive assistance from Reemtsma
Cigarettenfabriken GmbH v Ministero delle Finanze (Case C-35/05) [2007] ECR I2452. It was alleged in that case that a provision limiting the identity of those who
could claim a VAT repayment offended against the principle of equivalence because
there was no comparable restriction in relation to the recovery of overpaid direct tax.
At paras 94 and 95 of her opinion, Advocate General Sharpston agreed with the
following submission of the Commission:
“In general … a situation in that (direct tax) field is unlikely to
be comparable to that in the field of VAT. In the latter it is in
principle only the supplier who is in a direct legal relationship
with the tax authority. Indeed, the whole system of direct
taxation is unrelated to that of VAT. Since the principle of nondiscrimination concerns only comparable situations, it is thus
not relevant here.”
16. In its judgment, the Court adopted the more general part of the Commission’s
argument at para 45:
“In the present case, the system of direct taxation, as a whole,
is not related to the VAT system.”
Accordingly, the Court concluded that none of the EU anti-discriminatory
principles, including the principle of equivalence, were engaged by the comparison
between VAT and direct taxation.
17. Compass Contract Services Ltd v Comrs for Her Majesty’s Revenue and
Customs (Case C-38/16) EU:C:2017:454 involved a comparison between different
limitation periods applicable to claims to recover overpaid VAT, and claims to
deduct input tax from VAT otherwise due, for the purposes of the equal treatment
principle. The Fourth Chamber of the CJEU concluded that, even within the confines
of the VAT regime, the two claims were not truly comparable: see paras 36-39 of
the judgment.
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18. Taken together, these authorities certainly justify the exercise of very
considerable caution by a national court when faced with the assertion that a VAT
claim should be treated as truly comparable, for the purposes of the principle of
equivalence, with a claim relating to some domestic tax, and in particular with any
direct tax. But I do not consider it necessary or appropriate to go so far as to conclude
that, for all purposes connected with the principle of equivalence, VAT claims must
be treated as sui generis, with no possibility of there being a true comparator in a
claim arising out of some other tax. My reasons follow.
19. First, the identification of any such general rule would run counter to the
context-specific basis upon which it is clear that the examination of comparators for
the purposes of the principle of equivalence must be conducted. It would, in
particular, rule out any analysis of the question whether the particular procedural
provision alleged to amount to less favourable treatment had any connection with
underlying differences between VAT and some different domestic tax.
20. Secondly, although the court’s ruling in the Reemtsma case appears to come
quite close to such a general conclusion, the principle of equivalence lay only at the
fringe of the issues there being considered by the CJEU, with the result that,
unsurprisingly, the point was addressed with what may fairly be described as
extreme brevity. The case was mainly about the related principles of neutrality,
effectiveness and non-discrimination.
21. Thirdly, if the Reemtsma case had established such a general rule in 2007,
namely that VAT is for this purpose sui generis, with no true comparators, it is
difficult to understand why this did not constitute a simple solution to the question
referred to the CJEU in the Littlewoods case (Case C-591/10) [2012] STC 1714,
which included the question whether the restriction of a successful claimant to a
VAT repayment to simple interest offended the principle of equivalence, when
compared with interest payable on other types of claim for repayment of tax under
domestic law. It is evident from paras 42 to 48 of the opinion of Advocate General
Trstenjak that there was a wide range of submissions as to potential comparators,
including a concession from the UK government that, in principle, repayment claims
under domestic indirect taxation were comparable for the purposes of the principle
of equivalence, in the context of different entitlement to interest. In accordance with
the Advocate General’s advice, the Court of Justice referred the comparability
question to the UK courts. This must have been on the basis either that there was no
rule of general application for all purposes that VAT claims could in no
circumstances be treated as truly comparable with claims for repayment of domestic
tax, or that the CJEU regarded claims for restitution against the state as falling within
a separate category.
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22. Nevertheless, applying the context-specific analysis called for by the
European jurisprudence which I have described, the Court of Appeal was in my
judgment correct to conclude that none of the domestic taxes (namely Income Tax,
CGT and SDLT) proposed by Totel constituted true comparators with VAT for the
purpose of deciding whether the imposition in the VAT context of a pay-first
requirement constituted less favourable treatment contrary to the principle of
equivalence. This is because a trader seeking to appeal a VAT assessment is
typically in a significantly different position from a taxpayer seeking to appeal an
assessment to any of those other taxes, and in a manner which is properly to be
regarded as sufficiently connected with the imposition of a pay-first requirement. In
that respect my reasoning is closely aligned with that of the Court of Appeal, as
explained in para 54 of Arden LJ’s judgment.
23. Subject to certain exceptions to which I refer below, VAT is a tax of which
the economic burden falls upon the ultimate consumer, but which is collected by the
trader from the consumer, and accounted for by the trader to HMRC. By contrast,
taxpayers seeking to appeal an assessment to Income Tax, CGT and SDLT are being
required to pay, from their own resources, something of which the economic burden
falls on them, and which they have not collected, for the benefit of the Revenue,
from anyone else. It is therefore no less than appropriate that traders assessed to
VAT should be required (in the absence of proof of hardship) to pay or deposit the
tax in dispute, which they have, or should have, collected, while no similar
requirement is imposed upon the taxpayers in those other, and different, contexts.
24. I do not by reference to this connection between the pay-first requirement and
the trader’s paradigm status as a tax collector rather than a taxpayer mean to suggest
that it is a condition of the recognition of this important difference separating VAT
from other taxes that the pay-first requirement was devised for that specific reason.
The evidence before the court did not show what, in fact, the reason was. The
existence of a logical rather than causal connection is sufficient to justify the
conclusion that VAT is different from those other taxes in this context, rather than a
true comparator, regardless of the reason for the imposition of the pay-first
requirement.
25. Mr Firth sought to challenge this distinction between VAT and those other
taxes. First, he submitted that the portrayal of the VAT registered trader as a
collector rather than a payer of tax was true only for one of the three types of liability
for VAT, the other two being acquisition from other member states and imports from
outside the EU. That is, I agree, true of those heads of liability, but they arise only
in a cross-border context, and for the purpose of making the VAT scheme work as
a whole. The paradigm remains that of the trader who collects VAT from his
customers and accounts for it to the Revenue.
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26. Secondly, Mr Firth submitted that by no means in every case would a trader
seeking to appeal a VAT assessment already have collected the relevant tax from
his customer. The appeal might be about whether his supply was subject to VAT, in
circumstances where he had not charged VAT at all. That is, again, true as far as it
goes, but it does not significantly impact on the paradigm. More typical are those
appeals where the underlying dispute is whether the trader is entitled to deduct from
tax collected on his supplies the VAT paid by him on his inputs.
27. Thirdly, Mr Firth submitted that even if the VAT trader could generally be
regarded as a collector rather than payer of tax, the same was equally true of an
employer deducting and accounting for employees’ Income Tax under the PAYE
scheme so that Income Tax was, nonetheless, a true comparator with VAT. I would,
again, acknowledge that there is an element of similarity between the two, but there
are important differences. First, in circumstances of wilful failure to deduct by the
employer the employee remains liable to the Revenue for Income Tax whereas, in
the VAT context, the only recourse of HMRC is to the trader rather than the
consumer. This distinction is closely connected with the existence of a pay-first
condition for a VAT appeal but not in a PAYE context. Secondly, the employer has
not charged and received a payment from employees creating a fund for which the
employer is accountable. Thirdly, the PAYE scheme is only a sub-set of the Income
Tax scheme viewed as a whole, and lies nowhere near so close to the essential nature
of the relevant tax structure as does the quasi-collector status of the VAT trader.
28. Finally, it was no part of Totel’s case that, for the purposes of the principle
of equivalence, the PAYE part of the Income Tax scheme was the sole true
comparator with VAT for the purpose of testing whether the pay-first requirement
represented less favourable treatment. Rather, Totel’s case was that, simply because
all appeals against assessments to tax are made for the same general purpose, and to
the same tribunal, they could all properly be regarded as true comparators with
appeals of assessments to VAT. That requires the similarity question to be addressed
at a level of generality which is so high as to place it outside the entirety of the
relevant jurisprudence about the principle of equivalence. It must therefore be
rejected.
29. My conclusion on this issue is sufficient to dispose of this appeal. The issue
as to the meaning and application of the Proviso has content only against the
hypothetical assumption that appeals against assessment to all kinds of direct and
indirect domestic tax are true comparators with VAT appeals, and the unreality of
that hypothesis makes it difficult to conduct a reliable analysis of the second issue.
But it has been fully argued, and it was the first plank upon which the Court of
Appeal dealt with the case. I shall therefore make some limited observations about
it although, had it been necessary to decide this issue for the resolution of this appeal,
I might have regarded it as deserving of a reference to the CJEU. But first it is
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convenient to deal with the new submission of HMRC that the imposition of the
pay-first requirement does not in any event amount to less favourable treatment.
Does the pay-first requirement amount to less favourable treatment?
30. This issue would arise if, contrary to my conclusion, there had been a truly
comparable domestic tax in relation to which an appeal against an assessment was
not subjected to the pay-first requirement which affects VAT appeals. It is an issue
which would therefore arise if any of Income Tax, CGT or SDLT had been a true
comparator for the purposes of the principle of equivalence.
31. Less favourable treatment is not, of course, established merely because the
procedure for one type of claim contains a restriction or condition which is absent
from the procedure for another type of claim. It is common to find that different
claims are subjected to a package of procedural requirements, such that some of
those affecting claim A are less favourable, but others more favourable, than those
affecting claim B. A good example is to be found in Preston v Wolverhampton NHS
Trust (No 2) [2001] 2 AC 455, illustrated in paras 29 to 31 in the speech of Lord
Slynn.
32. In the present case, for the first time in this court, HMRC point out that
appeals against assessment to Income Tax, CGT and SDLT are subject to a
procedural regime such that the tax in dispute may still be collected pending the
outcome of the appeal, by processes of enforcement which may include the
presentation of a winding-up petition against the taxpaying company, unless the
taxpayer can obtain postponement of payment, by demonstrating that there are
reasonable grounds for believing that the tax in dispute has been overcharged: see,
in relation to Income Tax, section 55 of the Taxes Management Act 1970 and, in
relation to SDLT: paragraph 39 of Schedule 10 to the Finance Act 2003. If the
taxpayer faces a winding-up petition on the basis of the tax in dispute, then it may
defend that petition by showing that the amount in dispute is bona fide disputed on
substantial grounds.
33. HMRC concedes that the same principles about postponement, and the
defence of a winding-up petition, apply also to the collection of VAT pending an
appeal: see Revenue and Customs Comrs v Changtel Solutions UK Ltd [2015]
EWCA Civ 29; [2015] 1 WLR 3911. Nonetheless Mr Swift submits that, in practice,
a trader who has obtained disapplication of the pay-first requirement by
demonstrating hardship would not thereafter be subjected to any process of enforced
collection of the disputed tax, pending the outcome of the appeal.
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34. Mr Swift’s point is not so much that the pay-first requirement in relation to
VAT is balanced out by the provisions about collection and postponement pending
appeal in relation to Income Tax, CGT and SDLT. Rather, he submits that, looked
at in the round, the two regimes have broadly the same effect, so that the VAT
regime cannot be described as less favourable.
35. Viewed from the perspective of a trader with a good case for proving
hardship, together with a reasonable prospect of success on appeal, that might in
practice be so, although I would not accept that in no circumstances could a tax
demand be enforced against a VAT trader who had established hardship. The two
statutory tests are not the same. Nonetheless, from the perspective of a trader who
cannot demonstrate hardship, the position seems to me to be rather different. Such a
trader would have to raise and lodge the tax in dispute up front, before commencing
an appeal. By contrast a taxpayer under Income Tax, CGT or SDLT is at liberty to
initiate an appeal against an assessment, and may or may not be faced with an
application for collection by HMRC. More generally, there is in my view no escape
from the fact that the pay-first requirement is additional to, rather than a substitute
for, the regime for collection and postponement so that, in principle, it constitutes
less favourable treatment for VAT appellants even if, in certain types of supposedly
comparable cases, it may make no difference to the outcome, in terms of the ability
to prosecute an appeal without paying the tax in dispute.
The no most favourable treatment Proviso
36. This issue arises if the search for true comparators with the EU claim
discloses more than one comparable domestic claim with, viewed in the round,
different levels of favourableness in procedural treatment. On almost every occasion
when it has referred to the principle of equivalence the CJEU has added the proviso
that the principle does not require the EU claim to be treated as favourably as the
most favourably treated comparable domestic claim. In the earliest of the cases cited
to this court, the EDIS case, the proviso is explained thus, at para 36:
“That principle (the principle of equivalence) cannot, however,
be interpreted as obliging a member state to extend its most
favourable rules governing recovery under national law to all
actions for repayment of charges or dues levied in breach of
Community law.”
Similar statements appear in the Levez case at para 45, in Pontin v T-Comalux SA
(Case C-63/08) [2009] ECR I-10467, at para 45, in the Transportes Urbanos case,
at para 34 and in the Littlewoods case, at para 31. But none of these cases provide
any more comprehensive explanation of how the Proviso is to be applied in practice.
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This may be because its detailed operation is a matter for national courts, and the
CJEU considers that the Proviso as described above is sufficiently self-explanatory
for that purpose.
37. The issue of interpretation of the Proviso arises in the present case on the
assumption that truly comparable domestic tax claims may include appeals against
assessment not only to domestic taxes like Income Tax, where the procedure does
not include a pay-first requirement, but also to other taxes like Insurance Premium
Tax and Landfill Tax, which do. Thus VAT claims are treated less favourably than
one or more true comparators, but equally favourably with others. There are only
two levels of differently favourable treatment on this particular domestic spectrum
of supposedly comparable claims, but it is easy to imagine a spectrum with several
levels, with treatment of the comparable EU claim lying at the top, in the middle, or
at (or below) the bottom of that spectrum.
38. In Revenue and Customs Comrs v Stringer [2009] ICR 985, probably
thinking of a spectrum of the latter kind, Lord Neuberger said this (obiter) about the
Proviso:
“This is therefore not a case where it could be said that the
appellants are seeking to benefit from the ‘most favourable
rules’ of limitation, which I understand to mean exceptional or
unusually beneficial rules (as mentioned by the Court of Justice
in Levez v TH Jennings (Harlow Pools) Ltd, at para 42).”
In para 42 of the Levez case the CJEU merely repeated the Proviso as enunciated in
the EDIS case and set out above, slightly adjusting the language to suit the facts, but
without any underlying change in meaning.
39. In the present case Mr Swift submitted that the Proviso should be treated as
a reflection of the underlying purpose of the principle of equivalence, namely that
national procedural rules should not single out EU claims for worse treatment, and
specifically not discriminate against them by reason of their EU, rather than national,
origin. If therefore the procedure for any true domestic comparator gave treatment
to its claimant no more favourable than given to the EU claim, then the principle of
equivalence was satisfied. If in the present case Insurance Premium Tax and Landfill
Tax are true comparators, then the treatment of VAT appeals does not infringe the
principle of equivalence.
40. By contrast Mr Firth submitted that once any true comparator was identified
the procedure for which treated its claimants better than did the procedure for the
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EU claim, then the principle of equivalence was infringed, unless the better domestic
treatment fell into that exceptional category identified by Lord Neuberger in the
Stringer case as excluded by the Proviso. Income Tax, CGT and SDLT could not be
excluded as conferring exceptionally favourable treatment, and the fact that there
were other domestic tax appeals treated equally favourably with VAT was neither
here or there. The fact that domestic appellants in Insurance Premium Tax cases also
received less favourable treatment than Income Tax appellants did not mean that the
EU based claims by VAT registered traders were not less favourably treated. One
example of discrimination does not, so it is said, justify another.
41. Both sides sought to squeeze out of the language of the CJEU decisions some
titbits favourable to their sharply opposing cases on this point. For example, in the
paragraph of the judgment in the EDIS case following the statement of the Proviso
(para 37) is it stated:
“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.”
That last sentence, said Mr Swift, clearly allowed a member state to resist an
allegation of breach of the principle of equivalence if any similar domestic
procedure included a pay-first requirement.
42. In the present case the Court of Appeal applied that dictum, at para 47, as
follows:
“The jurisprudence of the CJEU shows that it is open to a
member state to apply any available set of rules, which are
already applied to similar claims, to an EU-derived claim,
provided that an EU-derived claim is not selected for the worst
treatment. No one suggests that that is the position here.”
43. Mr Firth relied by contrast first upon dicta from the Levez case, at paras 39
to 45 of the judgment. In my view, taken in context, they are neutral on the point.
Page 15
The high-water mark of his citations was this passage from the Pontin case, at para
56 of the judgment:
“If it emerges that one or more of the actions referred to in the
order for reference, or even other national remedies that have
not been put before the Court, are similar to an action for nullity
and reinstatement, it would also be for the referring court to
consider whether such actions involve more favourable
procedural rules.”
The implication was, he said, that the discovery of any comparable domestic claim
with more favourable treatment that the EU claim would offend the principle of
equivalence.
44. I do not consider that any reliable answer to this question can be found by the
minute textual analysis of the CJEU authorities. Nor was Lord Neuberger’s
instinctive conclusion about the limited meaning of the Proviso in the Stringer case
intended to be a fully reasoned or comprehensive explanation of its full purpose and
effect. I need reach no final conclusion in this case, but would tentatively suggest
the following analysis.
45. First, the Proviso should not be regarded as some free-standing rule, separate
from the principle of equivalence. Rather it is part of the Court of Justice’s
expression of the principle of equivalence itself, directed to explaining the standard
of treatment which that principle imposes upon member states when providing
procedures for the vindication of rights based in EU law. What is required is that the
procedure should be broadly as favourable as that available for truly comparable
domestic claims, rather than the very best available.
46. Secondly, the Proviso is, like the principle of equivalence of which it forms
part, best understood in the light of its purpose. Although nowhere expressly stated,
I consider that HMRC were correct to submit that it is to prevent member states from
discriminating against claims based upon EU law by affording them inferior
procedural treatment from that afforded to comparable domestic claims.
47. On that basis I consider that the conclusion of the Court of Appeal on this
issue, set out in the passage quoted above from the judgment of Arden LJ, is broadly
correct. I would only add that this would not justify the choice of some exceptionally
tough set of procedural rules already applied to some domestic claim for reasons
particular to that type of claim. But such a claim would be most unlikely to be a true
comparator in any event.
Page 16
Conclusion
48. I would therefore dismiss this appeal, on the ground that there has not been
shown to be any true comparator among domestic claims sufficient to engage the
principle of equivalence in relation to the imposition of a pay-first requirement upon
traders seeking to appeal assessments to VAT.
