On July 19, 2012, the ECJ issued its decision in the case C-591/10 (Littlewoods Retail and Others).
Context: Second and Sixth VAT Directives — Input tax — Refund of excess — Payment of interest — Procedures
The reference for a preliminary ruling concerns the interpretation of EU law on compensation for financial loss suffered by a taxpayer through overpayment of value added tax (‘VAT’).
Article in the EU VAT Directive
Article 8 of and Annex A, point 13, to Second Council Directive 67/228/EEC. Article 11(C)(1) of Sixth Council Directive 77/388/EEC (Article 90 of the EU VAT Directive 2006/112/EC)
Article 90 (Taxable amount)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1
- According to the referring court, since the introduction of VAT in the United Kingdom in 1973, the applicants in the main proceedings, save for the holding company, Littlewoods Limited, carried on catalogue-based home shopping businesses. Those businesses involved Littlewoods distributing catalogues and selling the goods shown in those catalogues through networks of persons known as ‘agents’. The agents earned commission on sales made by or through them (‘third party purchases’), which commission might be taken in cash, applied in respect of past purchases made by the agents themselves or (at an enhanced rate) applied towards future purchases.
- From 1973 until October 2004, commission on third party purchases was mistakenly treated as consideration for services provided by the agent to Littlewoods. It should properly have been treated (as a matter of both EU and national law) as a discount against the consideration for past purchases (if taken in cash or applied in respect of those purchases) or future purchases (if applied at the enhanced rate towards future purchases). Littlewoods therefore overpaid VAT in respect of certain supplies because the taxable amount of goods supplied by it was mistakenly taken to be greater than it was.
- The referring court thus considers that the overpaid sums were not lawfully due under Directive 67/228, as regards years prior to 1978, or under Directive 77/388, as regards the period from that year onwards.
- Littlewoods submitted claims to the Commissioners for repayment of the overpaid VAT. Since October 2004, the Commissioners have repaid overpaid VAT of GBP 204 774 763 to Littlewoods. That repayment was made pursuant to section 80 of the VATA 1994.
- The Commissioners have also paid simple interest on that repayment of GBP 268 159 135, in accordance with section 78 of the VATA 1994.
- In the actions pending before the referring court, Littlewoods claim further sums amounting to some GBP 1 billion in aggregate. Those sums are said by Littlewoods to be the benefit the United Kingdom of Great Britain and Northern Ireland received through the use of the principal amounts of tax overpaid. They are said by Littlewoods to be calculated by reference to the compounded rates of interest applicable to United Kingdom Government borrowing from time to time over the period in question. The figure claimed makes allowance for the simple interest that has already been paid.
- In the national proceedings Littlewoods rely on two national law causes of action, namely a claim for restitution of tax unlawfully collected, commonly referred to as ‘the Woolwich claim’ and a claim for restitution of money paid pursuant to a mistake of law (the ‘mistake-based claim’).
- In that regard, the referring court states that the limitation period applicable to a Woolwich claim is six years, running from the date on which the tax was overpaid, whereas the limitation period for a mistake-based restitutionary claim is six years running from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it.
- The referring court considers that those domestic law limitation periods conform with the requirements of EU law.
- In the cases in the main proceedings, it is undisputed that:
- – between 1973 and October 2004 the Commissioners collected VAT in breach of EU and national law;
- – Littlewoods have a right to repayment of the overpaid VAT as a matter of EU and national law, the corresponding amounts having been paid to the Commissioners;
- – Littlewoods have also been paid simple interest pursuant to and calculated in accordance with the relevant national statutory provisions;
- – the conditions for State liability for damages for breach of EU law are not met.
- According to the referring court, none of the causes of action relied on by Littlewoods can apply in this case. That court considers that overpaid VAT could be recovered only by way of a claim under section 80 of the VATA 1994 and that the only basis on which Littlewoods could recover interest was section 78 of that Act. Consequently, the claims made by Littlewoods should, if national law only were to be applied, be dismissed pursuant to the said sections 78 and 80.
- That court has doubts, however, as to whether such a solution complies with EU law.
1. Where a taxable person has overpaid VAT which was collected by the Member State contrary to the requirements of EU VAT legislation, does the remedy provided by a Member State accord with EU law if that remedy provides only for (a) reimbursement of the principal sums overpaid, and (b) simple interest on those sums in accordance with national legislation, such as section 78 of the VATA 1994?
2. If not, does EU law require that the remedy provided by a Member State should provide for (a) reimbursement of the principal sums overpaid, and (b) payment of compound interest as the measure of the use value of the sums overpaid in the hands of the Member State and/or the loss of the use value of the money in the hands of the taxpayer?
3. If the answer to both questions 1 and 2 is in the negative, what must the remedy that EU law requires the Member State to provide include, in addition to reimbursement of the principal sums overpaid, in respect of the use value of the overpayment and/or interest?
4. If the answer to question 1 is in the negative, does the EU law principle of effectiveness require a Member State to disapply national law restrictions (such as sections 78 and 80 of the VATA 1994) on any domestic claims or remedies that would otherwise be available to the taxable person to vindicate the EU law right established in the Court of Justice’s answer to the first 3 questions, or is it sufficient that the national court disapplies such restrictions only in respect of one of these domestic claims or remedies?
What other principles should guide the national court in giving effect to this EU law right so as to accord with the EU law principle of effectiveness?
(1) Under European Union law a taxable person who has overpaid VAT which was collected by the Member State contrary to the requirements of EU VAT legislation has a right to reimbursement of the VAT collected in breach of EU law and a right to payment of interest on the principal sum to be reimbursed. The question whether the interest on the principal sum to be reimbursed is to be paid on the basis of a system of ‘simple interest’ or a system of ‘compound interest’ concerns the detailed rules governing the interest claim stemming from European Union law, which are to be determined by the Member States in accordance with the principles of effectiveness and equivalence.
(2) If the referring court should conclude that the detailed rules governing payment of interest on VAT collected in breach of EU law at issue in the main proceedings are less favourable than the detailed rules governing similar domestic interest claims and that there is therefore a breach of the principle of equivalence, it is obliged to interpret and apply the national rules in such a way that interest is paid on the VAT collected in breach of EU law in accordance with the more favourable rules which apply to similar domestic claims.
Union law must be interpreted as meaning that a taxable person who has paid too much value added tax levied by the Member State concerned in breach of the EU law rules on value added tax is entitled to a refund of the tax imposed in breach of Union law as well as on payment of interest on the principal to be repaid It is for the national court, in accordance with the principles of effectiveness and equivalence, to decide whether the principal to be repaid is to be paid ‘simple interest’ or ‘compound interest’ or any other type of interest.
Input tax – Refund of surplus – Payment of interest
A taxable person who has overpaid VAT, which has been levied by the Member State concerned in breach of EU rules on VAT, is entitled to a refund of the VAT charged in breach of EU law and to payment of interest on the principal to be refunded.
It is for the national court, subject to the principles of effectiveness and equivalence, to determine whether the principal to be repaid should be subject to the payment of ‘simple interest’ or ‘compound interest’ or some other type of interest.
Similar ECJ cases
Reference to the case in the EU Member States (+UK)
- UK – Supreme Court – JUDGMENT Littlewoods Limited and others
- UK Supreme Court Rules For HMRC In Landmark Littlewoods Case