On June 14, 2017, the ECJ issued its decision in the case C-38/16 (Compass Contract Services).
Context: Reference for a preliminary ruling — Value added tax (VAT) — Repayment of overpaid VAT — Right to deduct VAT — Procedures — Principles of equal treatment and fiscal neutrality — Principle of effectiveness — National legislation introducing a limitation period
Article in the EU VAT Directive
Article 17 of Sixth Council Directive 77/388/EEC (Article 167 and 168 of the EU VAT Directive 2006/112/EC)
Article 17 (Origin and scope of the right to deduct VAT)
1. The right to deduct shall arise at the time the deductible tax becomes chargeable.
2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
(a) [VAT] due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;
(b) [VAT] due or paid in respect of imported goods;
(c) [VAT] due under Articles 5(7)(a) and 6(3).
Facts
- Compass, which is a company providing, inter alia, catering services, seeks repayment of sums that it overpaid in respect of VAT relating, in particular, to two accounting periods (quarters) ending in the months of January and April 1997.
- In 1996, the United Kingdom of Great Britain and Northern Ireland announced its intention to amend the national legislation concerning repayment of overpaid output VAT and to reduce, from six years to three years, the limitation period for claims in respect of such repayments. That amendment entered into force on 4 December 1996. By judgment of 11 July 2002, Marks & Spencer (C‑62/00, EU:C:2002:435), the Court held that that national legislation was incompatible with the principles of effectiveness and of the protection of legitimate expectations given that it retroactively curtailed, without any transitional period, the period within which the repayment of the overpaid VAT could be claimed.
- The Court of Appeal (England & Wales) (Civil Division) (United Kingdom) applied that case-law in respect of claims for deduction of input VAT, the United Kingdom having also reduced, from 1 May 1997, the limitation period for such claims from six years to three years. In Michael Fleming (t/a Bodycraft) v Commissioners ((2006) EWCA Civ 70) that court held that, given that that reduction in the limitation period had been made without a transitional period, those persons whose right to deduct input tax arose before 1 May 1997 should be allowed to claim and the application of that new period should, in respect of those persons, be disapplied. That judgment of the Court of Appeal (England & Wales) (Civil Division) was confirmed on 23 January 2008 by the House of Lords in its judgment in Fleming and Condé Nast v Commissioners ((2008) UKHL 2).
- Following that judgment of the House of Lords, the Commissioners published a bulletin (Business Brief 07/08 (2008) STI 311 (Issue 8)) in which they declared that VAT claims brought before the expiry of the new three-year period may relate to ‘output tax overpaid or overdeclared in accounting periods ending before 4 December 1996’ and ‘input tax in respect of which the entitlement to deduct arose in accounting periods ending before 1 May 1997’. Those two dates, therefore, corresponded to the entry into force of the new reduced limitation period of three years for submitting, on the one hand, claims for repayment of overpaid VAT, namely 4 December 1996 and, on the other hand, claims for the deduction of input VAT, namely 1 May 1997. Those VAT claims are now known as ‘Fleming claims’. Section 121 of the 2008 Act codified those limitation periods for those two types of claim.
- It is apparent from the order for reference that in the month of June 2006 the Court of Appeal (England & Wales) (Civil Division) (United Kingdom) held that certain supplies by Compass of cold food catering, on which Compass had been charging and accounting for VAT, were not liable to VAT. That court held that those supplies were zero-rated under national law, pursuant to the derogation permitted by Article 28(2) of the Sixth Directive.
- The Commissioners therefore accepted that Compass had overpaid VAT. In January 2008, Compass submitted claims for the recovery of overpaid output tax for the periods from 1 April 1973 to 2 February 2002.
- The Commissioners repaid the VAT overpaid by Compass for the periods from 1 April 1973 to 31 October 1996. They refused, on the other hand, claims for repayment of VAT overpaid by that company for the remaining periods on the grounds that those claims were time-barred. They took the view that the three-year limitation period started to run on 4 December 1996 for the accounting periods ending from that date and that it had expired on the date on which Compass’s claims were filed. As the referring court has stated, the periods at issue in the case in the main proceedings are, therefore, limited to the two accounting periods ending after 4 December 1996 and before 1 May 1997, Compass not disputing that the limitation period had validly run after the latter date.
- Compass then brought an action before the First-tier Tribunal (Tax Chamber) (United Kingdom) against the refusal of the Commissioners to repay Compass the VAT overpaid in respect of those two accounting periods. In support of that action, Compass maintains that the difference in treatment between a claim for repayment of output tax, such as the claim it brought, and a claim for the deduction of input tax is contrary to the principle of equal treatment. According to Compass, there is no reason why, in respect of those same accounting periods, a taxable person may introduce a claim for the deduction of VAT but not a claim for repayment of overpaid VAT. The temporal discrepancy under the UK legislation as to the date from which the limitation period of three years comes into force, which thus establishes a difference in treatment between those two types of claim and which arose through happenstance from the history of the litigation giving rise to the enactment of the limitation period concerned, is not objectively justified.
Questions
Does the UK’s different treatment of output tax Fleming claims (which could be made for periods ending before 4 December 1996) and input tax Fleming claims (which could be made for periods ending before 1 May 1997 – i.e. later than output tax Fleming claims) result in:
- a breach of the EU law principle of equal treatment; and/or
- a breach of the EU law principle of fiscal neutrality; and/or
- a breach of the EU law principle of effectiveness; and/or
- a breach of any other relevant EU law principle?
If the answer to any of Question 1(a) to 1(d) is affirmative, how should output tax Fleming claims relating to the period from 4 December 1996 to 30 April 1997 be treated?
AG Opinion
(1) It is not contrary to EU law for a national measure, like that at issue in the main proceedings, in laying down a transitional period for the introduction of reduced limitation periods applicable both to claims for repayment of overpaid VAT and to claims for deduction of input VAT, to provide that the new limitation period should start to run, for the latter, from a later date than the date fixed for it to start running for the former.
(2) In the alternative, were the Court to give an affirmative answer to the first question, the national court would have to draw the appropriate conclusions from infringement of the principle of equal treatment, in accordance with the rules of national law relating to temporal effects, in such a way that the remedies it grants are not contrary to EU law.
Decision
The principles of fiscal neutrality, equal treatment and effectiveness do not preclude national legislation, such as that at issue in the main proceedings, which, in the context of the reduction of the limitation period, on the one hand, for claims for overpaid value added tax and, on the other hand, for claims for deduction of input value added tax, provides different transitional periods, with the result that claims relating to two accounting periods of three months are subject to different limitation periods depending on whether they concern the repayment of overpaid value added tax or the deduction of input value added tax.
Summary
The principles of fiscal neutrality, the principle of equal treatment and the principle of effectiveness do not preclude national legislation which provides for different transitional periods in the context of shortening the limitation period for applications for refund of VAT undue paid and for applications for deduction of input VAT, which subject the applications in respect of two tax periods of three months to different limitation periods according to whether they concern the refund of VAT unduly paid or the deduction of input VAT.
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