Out-Law News | 24 Apr 2014 | 10:38 am | 2 min. read
Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, noted the finding by the panel of judges that a “prudent and circumspect operator” would have known to exercise its right to a refund under EU law before it ran out of time.
“The judgment appears to be a warning shot to taxpayers to avoid excessive delay in enforcing any EU rights they may have,” he said. “In particular, it would seem that the court is stating that it expects large businesses to have access to sufficient resource and advice such as to enable it to enforce rights in a timely manner.”
In 2009, BT made a claim against HM Revenue and Customs (HMRC) for over £91 million in unclaimed VAT ‘bad debt relief’ for the period between 1 January 1978 and 31 March 1989. The claim arose in relation to business and private customers who had defaulted on their debts to BT, which had already accounted to HMRC for the standard rate of VAT on the services it provided to them. HMRC rejected this claim. The Upper Tier Tax Tribunal later found that BT’s claim was time-barred as a matter of national law, but that EU law permitted it to make the claim.
Before the law was changed in 1997, taxpayers claiming relief from VAT in respect of bad debts had to prove that the debtor was legally insolvent. The Court of Appeal agreed with BT and the Upper Tier that this “disproportionate, unreasonable and unjustified” position infringed EU law, as it “[deprived] many classes of creditor” of their rights. However, the company was unable to argue that when the law changed, it was unfairly prevented from making claims in relation to pre-1990 debts.
“My intuition is that there is something inherently wrong in BT’s complaint that, as from 19 March 1997, [the law] unlawfully deprived it of its right to enforce its directly effective rights,” the judge said. “It had had since 1978 the opportunity to enforce those rights in respect of each and every bad debt as it arose, and was entitled to claim in doing so that the insolvency condition was invalid; and by 19 March 1997 it is likely that all its debts arising from its pre 1 April 1989 supplies were either paid or statute-barred.”
“It had … been open to BT from the dawn of the Old Scheme in 1978 down to 1990 to make bad debt relief claims under the machinery of the Old Scheme … The only reason BT did not make such claims is, I presume, because it was unaware that it was open to it to do so. I do not understand how such unawareness can be a relevant consideration. EU law has been flowing up our estuaries since 1972 and BT had ever opportunity to obtain the most expert advice as to its rights,” he said.
In a statement, HMRC said that it welcomed the court’s confirmation that “UK law, which in 1997 ended a seven-year transitional period for making VAT claims prior to the 1989 change”, did not infringe BT’s EU law rights.
“As the Court noted, BT had literally had almost two decades in which to enforce its rights, but did not do so,” it said. “BT’s claim was submitted 12 years after the transitional period to make claims had expired and was therefore made too late. In addition, the Court confirmed HMRC’s view that BT’s claim was a claim for bad-debt relief and not a correction of errors on its VAT returns.”