On 19 July 2012, the decision of the Court of Justice of the European Union (the "CJEU") in Littlewoods v HMRC (Case C-591/10) was released.The issue before the CJEU was where a person has overpaid
On 19 July 2012, the decision of the Court of Justice of the European Union (the "CJEU") in Littlewoods v HMRC (Case C-591/10) was released.
The issue before the CJEU was where a person has overpaid VAT that was collected by the Member State unlawfully as a matter of EU law, does the remedy provided by a Member State accord with EU law if that remedy provides only for reimbursement of the principal sums overpaid and simple interest on those sums in accordance with national legislation (such as section 78 of the VATA 1994)?
Advocate General Trstenjak said that, to be lawful, such conditions must comply with the EU principles of "equivalence" and "effectiveness", i.e. they must not be less favourable than those concerning similar claims based on provisions of national law or arranged in such a way as to make the exercise of rights conferred by the EU legal order practically impossible. She said that the principle of "effectiveness" (is an effective remedy provided?) was satisfied by a payment of simple interest. However, she indicated that determining whether the principle of "equivalence" (is the remedy equivalent to that to be paid in similar circumstances?) had been met was "particularly difficult". This was not least because the Commission and the Member States expressed different views on what the "similar circumstances" should be.
The CJEU noted, as regards effectiveness, that the value of the simple interest payment to Littlewoods (which corresponded to interest due over about 30 years) was 23% greater than the value of the principal sum. In relation to equivalence, the CJEU held that it is for the national court, which alone has direct knowledge of the procedural rules governing restitution actions against the MemberState, to determine whether the procedural rules comply with that principle.
Penalty shoot-out?
As the CJEU indicated that it is for the domestic courts to decide, after its 2 year sojourn inLuxembourg, the appeal returns to the High Court inEngland.
The High Court will need to determine whether there is an equivalent UK domestic interest claim which provides for compound interest. As Advocate-General Trstenjak noted, that may not be straight forward to determine. Given the financial significance of the decision, it is unlikely that the High Court's decision will be the final answer. It is likely that, in due course, it will be the Supreme Court that determines the issue.
The issue before the CJEU was where a person has overpaid VAT that was collected by the Member State unlawfully as a matter of EU law, does the remedy provided by a Member State accord with EU law if that remedy provides only for reimbursement of the principal sums overpaid and simple interest on those sums in accordance with national legislation (such as section 78 of the VATA 1994)?
Advocate General Trstenjak said that, to be lawful, such conditions must comply with the EU principles of "equivalence" and "effectiveness", i.e. they must not be less favourable than those concerning similar claims based on provisions of national law or arranged in such a way as to make the exercise of rights conferred by the EU legal order practically impossible. She said that the principle of "effectiveness" (is an effective remedy provided?) was satisfied by a payment of simple interest. However, she indicated that determining whether the principle of "equivalence" (is the remedy equivalent to that to be paid in similar circumstances?) had been met was "particularly difficult". This was not least because the Commission and the Member States expressed different views on what the "similar circumstances" should be.
The CJEU noted, as regards effectiveness, that the value of the simple interest payment to Littlewoods (which corresponded to interest due over about 30 years) was 23% greater than the value of the principal sum. In relation to equivalence, the CJEU held that it is for the national court, which alone has direct knowledge of the procedural rules governing restitution actions against the MemberState, to determine whether the procedural rules comply with that principle.
Penalty shoot-out?
As the CJEU indicated that it is for the domestic courts to decide, after its 2 year sojourn inLuxembourg, the appeal returns to the High Court inEngland.
The High Court will need to determine whether there is an equivalent UK domestic interest claim which provides for compound interest. As Advocate-General Trstenjak noted, that may not be straight forward to determine. Given the financial significance of the decision, it is unlikely that the High Court's decision will be the final answer. It is likely that, in due course, it will be the Supreme Court that determines the issue.