ECJ denies refund application for VAT paid between 1973 and 1977

In Grattan plc v The Commissioners of Her Majesty’s Revenue & Customs [2012] EUECJ C-310/11 the European Court of Justice has found that the taxpayer does not have a directly effective right to treat the basis of a VAT assessment as retrospectively reduced where, after the time of the supply, the recipient received a credit from the supplier.  The decision illustrates the scope of VAT refund claims still being agitated in the UK.  These claims were restricted to VAT paid between 1973 and 1977 (as from 1978 the issue was dealt with by adjustment provisions which allowed for a subsequent reduction in assessments).

The decision was in response to the following question referred by the First Tier Tax Tribunal:

In relation to the period before 1 January 1978, does a taxable person have a directly effective right under Article 8(a) of the Second Directive and/or the principles of fiscal neutrality and of equal treatment, to treat the basis of assessment of a supply of goods as retrospectively reduced where, after the time of that supply of goods, the recipient of the supply received a credit from the supplier which the recipient elected either to take as a payment of money, or as a credit against amounts owed to the supplier in respect of goods to the recipient that had already taken place.

The issue before the Tribuanl was whether credits subsequently given to “agents” in respect of goods purchased through mail order companies had the effect of reducing the consideration received by the companies (and therefore the VAT liability previously paid).  The question directed to the ECJ was whether this subsequent credit allowed the company to retrospectively claim a refund of the VAT paid.

The ECJ found that the crucial factor was how much the taxable person has ‘actually received’ at the time when the basis of the assessment is to be determined.  Further, the possibility of repayments of parts of the consideration after the supply has taken place has no bearing on the determination of the assessment and the amount of the tax debt accrued.  Finally, while an adjustment procedure was introduced from 1 January 1978, there is no scope to read such an adjustment procedure into the legislation prior to that time, or to give it a retrospective operation.