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Today’s Top Headlines




Channel Islands Fail To Overturn UK VAT Decision

by Jason Gorringe, Tax-News.com, London

21 March 2012

The governments of the Channel Islands have announced their 'disappointment' at the findings of the UK High Court, in response to the islands' joint challenge to the United Kingdom government's decision to remove long-standing value-added tax concessions crucial to the islands' fulfilment industries.

A three-day Judicial Review hearing at the High Court in London began on March 13, 2012, to hear the arguments of lawyers representing the Channel Islands in their challenge to the scheduled removal of the United Kingdom's Low-Value Consignment Relief (LVCR) for the islands' fulfilment industries from April 1, 2012.

The LVCR scheme allows goods imported to the UK from non-EU territories to be sold free from value-added tax (VAT) if they are priced at less than GBP15 (USD23), down from GBP18 before November last year. The scheme has encouraged many businesses to set up warehouses in the Channel Islands from which they ship items such as CDs and DVDs to the UK, and some argue that this has contributed to the demise of some traditional 'high street' retailers.

Under legislation announced by the UK Treasury on November 9, LVCR will continue to apply with the new GBP15 threshold to commercial supplies from all non-EU jurisdictions except the Channel Islands. Jersey and Guernsey decided to challenge this decision, requesting clarification over whether the United Kingdom had infringed European law. The islands argue that the decision will just cause companies to relocate operations out of the Channel Islands and therefore yield no new revenues for the UK government while at the same time severely impacting the islands' economies.

However, the Judicial Review hearing concluded that the UK government acted legally, with Mr Justice Melling pointing out that there was no legal requirement that the UK government should treat one territory "the same as another". The judge did nevertheless concede that case covered a "difficult area" which should be examined by a higher court.

The governments of the Channel Islands were given leave to appeal the ruling, and both are said to be considering their options. Taking the case to the European Court of Justice promises to be a long and costly affair however, with a judgement not expected for about 18 months.

Responding to the High Court announcement, Jersey's Economic Development Minister, Alan Maclean, stated:

"The High Court has ruled that the UK’s proposed changes to LVCR are consistent with EU VAT law. Therefore, from April 1, 2012, it is anticipated that VAT will be applied to all commercial consignments from the Channel Islands, regardless of value."

"I am extremely disappointed at this outcome and we will now be considering whether to lodge an appeal. The changes, which are targeted against the Channel Islands alone, create an uneven playing field. We know that some businesses will find it difficult to compete under these circumstances and as such, jobs are likely to be lost."

"We will continue our work to find other ways to support fulfilment businesses, in particular finalizing plans to support the development of other markets.

"The decision to seek to clarify the legality of this proposal was the right one. On the basis of the strength of the legal advice received, we decided to take legal action through the English courts to clarify EU VAT Law in relation to the draft LVCR clauses, published as part of the draft UK Finance Bill 2012."

Guernsey's Minister for Commerce and Employment, Carla McNulty Bauer added:

"I'm very disappointed with the outcome of the Judicial Review. It could well have a major impact on jobs and the economy of the Channel Islands. Over the coming days we will be making contact with industry, following on from a series of meetings we've had with many of the main businesses, in order to ascertain what their plans are now that the decision has been reached. Of course Commerce and Employment will continue to do what it can to assist the industry and mitigate the effects of the HM Treasury decision.”

TAGS: court | tax | business | value added tax (VAT) | law | tax havens | international financial centres (IFC) | Guernsey | Jersey | United Kingdom | legislation | retail

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