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| ECJ Rules For UK On VAT Refunds |
by Ulrika Lomas, Tax-News.com, Brussels
Monday, July 26, 2010
The European Court of Justice has found in favour of the United Kingdom in an action brought against it by the European Commission concerning the repayment of UK VAT to businesses outside the European Union. The decision will be a blow to the financial services and insurance sectors and means that the UK Government can deny claims for the repayment of UK VAT incurred by businesses established outside the European Union.
VAT recovery rules for international financial service sector businesses are complex at the best of times. Businesses established outside the EU rely on a piece of legislation called the EU 13th Directive, to reclaim VAT incurred in the UK. The UK Government has interpreted the 13th Directive legislation to mean that it can restrict entitlement to VAT recovery for those financial service sector businesses established outside the EU.
Although the Commission recognised that the UK’s implementation of the 13th Directive was, strictly speaking, correct it argued that it conflicted with the wording and purpose of the main VAT Directive which governs the application of the tax across the EU. The ECJ disagreed with the Commission and dismissed the action on the basis that the UK has fully complied with the wording of 13th Directive.
Lorraine Parkin, Head of VAT at Grant Thornton UK LLP says: "This ruling will be a big disappointment to finance and insurance businesses established outside the EU that were hoping to make substantial claims for VAT refunds. Furthermore, it reinforces the more favourable VAT recovery treatment received by EU established financial service sector businesses trading outside the EU. The commission perceived an anomaly between these two sets of circumstances. However, the ECJ judgment confirms that the UK's position is correct.
"This judgment is good news for UK HMRC and Treasury but bad news for the global Financial Services sector established outside the EU. It will take a change in primary legislation to alter the position and a quick change does not seem likely. The answer is to consider coming into the EU."
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