Case Alert: EC Commission v. United Kingdom Case C-86/11

Wednesday, May 8, 2013

by Nick Ryan

This case follows that taken by the EC Commission against Ireland and follows the formal request by the EC Commission for the UK Government to amend its UK VAT legislation in accordance with the EC Commissions’ understanding of the meaning of Articles 9 and 11 of the VAT Directive.The EC Commission is of the view that UK VAT law was not compatible with the Articles in question as non taxable persons were permitted under UK VAT law from inclusion within a VAT Group. As expected the UK Government strongly contested this assertion hence the Commission bringing the case to the CJEU.
As with many such cases it is the meaning of the words used within the legislation and the interpretation of same that causes the issue. The premise of the argument presented by the Commission rested on the understanding of what is meant by “any persons” within Article 11 and that it is their understanding that Article 11 has to be interpreted as meaning that non-taxable persons cannot be included in a VAT Group as “any person” referred to “a single taxable person” and could not be separated as such. Article 11 provides for the legislation to permit individual Member States the basis of what can be regarded as eligible to be a member of a VAT group and rests this eligibility on the meaning of “may regard as a single taxable person any persons established in the territory”.
The Commission argued that any persons had to refer to a single taxable person and could not be detached as such to mean something other than a single taxable person. As such, eligibility for VAT group is only available to taxable persons. It further argued that if any person could be detached then this allowed the facility for the formation of VAT groups which only included non taxable persons, a position which would then be contrary to the VAT Directive.
The UK countered this argument that Article 11 implies by the words used that it means any persons whether taxable or not are eligible to join a VAT group. They further argued that if the intention was to restrict the membership of a VAT group to taxable persons only then the legislation should have been clearly written as such. Finally the UK concluded that Article 11, as written, provided for no apparency on the restrictive meaning to any persons and the exclusion of such from VAT groups. A key point here is that the UK government contested this based on the English language version of the Directive, whether there is a suggestion that the section was lost in translation was not suggested.
The Court found entirely in favour of the UK government in that no distinction is made in Article 11 between taxable and non-taxable persons. As such a non-taxable person cannot be excluded from a VAT group.
The decision has been positively received among practitioners and the like as a decision for common sense. In part this is the case yet it further highlights the problems facing the legislators over the matter of interpretation and the need to ensure that what is written is exactly what it is meant to reflect. Although the decision has been welcomed I do no believe the matter will end here. The EC Commission clearly feels that both Ireland and the UK have misinterpreted the application of the legislation and therefore may well look to remedy this by enacting a legislative amendment. If this step is taken then those organisations operating under a VAT group umbrella that contain pure holding companies, dormant companies and non taxable persons will need to reconsider how best they can operate and what cost VAT may become if members of the VAT group become excluded.
If you would like more information on the issues surrounding this case, have a question or would like to discuss the potential impact of a legislative change to a specific VAT group then please contact Nick Ryan either by telephone, + 353 2388 38181, email, advice@thevatpractice.ie or complete the contact section below.

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