EU Advocate General Agrees With UK Customs In VAT Case

by Robert Lee, Tax-News.com, London

31 January 2005

An opinion issued by an Advocate General with the European Court of Justice has stated that a Jersey-based firm is not entitled to VAT refunds from the United Kingdom Customs & Excise department, despite being based outside of the European Union.

In the view of Advocate General Poiares Maduro, RAL, which operates amusement arcades in the UK, was liable for British value added tax because the location of its machines meant it had a "fixed establishment" in the country.

If income from the machines is allowed to escape VAT, Maduro believes that competition within the EU would be distorted, and European firms will be encouraged to set up outside the community to avoid tax.

Sue Rathmell, indirect tax director at business consultants Deloitte, observed that a similar ruling by the ECJ will impact taxpayers who believe they do not have fixed establishments in the UK due to a lack of British staff which therefore have not previously registered for VAT.

While not binding, the opinions of advocates general are rarely contradicted by the European Court.

“This is an interesting decision because the Advocate General believed that to allow the income from these machines to escape UK VAT would distort competition and encourage businesses to relocate outside the EU to get a more favourable VAT position,” noted Rathmell.

“This is the first of a number of important UK VAT cases being heard at the ECJ and therefore many businesses and their advisers will be looking carefully at this opinion. The ECJ’s decision on this and the other UK cases is eagerly awaited,” she added.

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