It is entirely plausible that the Court of Justice of the European Union (CJEU) will still be making decisions on the UK’s tax system in 2023.
VAT registered businesses can make claims for VAT overpaid or under-recovered within a period of four years from the discovery of errors. Where those errors result from the UK failing to correctly implement EU VAT law, UK taxpayers have directly effective rights to European VAT legislation relating to those tax periods.
Therefore, assuming the UK leaves the EU as planned in April 2019, the period to March 2019 will still be covered by European VAT law and taxpayers will still have directly effective rights for all periods up to March 2019.
In publishing the Great Repeal Bill White Paper, the government stated that the CJEU will no longer have any jurisdiction in existing United Kingdom VAT law (or any new VAT laws), and that the Bill will provide that historic CJEU case law, ‘as it exists’ on the day of secession from the EU, will be given the same binding, or precedent, status as if it were a decision of the Supreme Court, as failing to do so ‘would create new uncertainties about the application of VAT’. The White Paper further stated that it would be expected that the Supreme Court would not normally depart from EU case-law precedent unless there are specific reasons to do so, with any new UK legislation taking precedence over EU-derived law.
As far as VAT law is concerned this will mean that, where there is already CJEU precedent, or the UK Courts consider that they have sufficient knowledge to interpret EU VAT law, there is unlikely to be any referral to the CJEU.
However, despite being subject to EU VAT rules for over 40 years, there are many instances where UK VAT tribunals still require CJEU guidance – for example VAT recovery by holding companies or the extent of VAT exemption to finance and insurance services. Indeed, earlier this month the UK Supreme Court initiated a referral to the CJEU regarding VAT recovery on hire-purchase transactions.
Therefore, where there is insufficient CJEU precedent on interpretation of EU VAT law, a referral may still be required from UK VAT courts to be heard by the CJEU, and a binding decision issued by the CJEU, even if the UK has already left the EU by the time the decision is handed down.
Whilst the government’s existing majority would have made it harder to push through its Great Repeal Bill, the underlying principle remains the same for any incoming government. As VAT legislation cannot be applied retrospectively – a precedent established in the UK via the CJEU – then, no matter the hue of the next government following June’s election, the CJEU is likely to be making decisions impacting VAT in the UK for years to come.
For more information please get in touch with David Wilson, or your usual RSM contact.