Interesting times for restitution claims

May you live in interesting times.

This is – apocryphally – an ancient Chinese curse. Whatever its provenance, the times are certainly interesting for those who seek restitution of taxes invalidly paid contrary to EU law. In Test Claimants in the FII Group Litigation v HM Revenue & Customs [2008] EWHC 2893 (Ch) (27 November 2008) Henderson J dealt with a series of issues arising in such claims, and in Test Claimants in the VIC Group Litigation; FJ Chalke Ltd & Anor v Revenue & Customs [2009] EWHC 952 (Ch) (08 May 2009) he held that EU law required compound interest to be paid on such claims. This is in contrast to the position at national law, where the courts have held that similar claims to restitution of overpaid taxes (such as was pleaded in the more recent Bloomsbury International Ltd v Sea Fish Industry Authority [2009] EWHC 1721 (QB) (24 July 2009)) only attract simple interest (see my piece “Interesting Times. Overpaid Taxes, Restitution and Compound Interest” (2005) 27 DULJ (ns) 343-363). After Chalke, the Times reported that this could pave the pay for claims amounting to more than £1 billion, and in my previous post I noted that the Financial Times later reported that the Revenue had put aside five times this amount to deal with these and similar claims.

Now comes the bizarre news that the UK’s new Upper Tribunal for tax matters has held where VAT was paid in accordance with domestic law provisions later found to be incompatible with EU law, the Revenue must refund the tax with simple interest only. In Wilkins v The Revenue Commissioners [2009] UKUT 175 (TCC) (pdf), the Tribunal held that ss 78 and 85A of the Value Added Tax Act 1994 (also here) and other provisions to which they refer, which allow for interest on such claims, on their natural construction provided only for simple interest. According to the Times, the consequence will be that affected taxpayers will only receive simple interest from the Revenue and will have to bring a further claim in the High Court for that to be topped up to compound rates. It is an interesting development, but it almost certain to be appealed, though whether the appeal will be successful may very well depend on the outcome of the appeal in the FII litigation, which is due to open next week in the Court of Appeal. In the meantime, judgment is awaited in Ireland in the case brought by GE Capital Woodchester against the Revenue claiming it has overpaid some €19 million due to the State’s alleged failure properly to implement an EU directive related to the VAT treatment of hire purchase transactions.

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