Teacakes sweetened the week for Marks & Spencer today when the EU's advocate general backed the retailer in its £3.5m VAT dispute with tax authorities over the cakes.
The dispute, which has dragged on for ten years, relates to VAT paid on its teacakes between 1973 and 1994. Tax authorities had admitted that the cakes had been wrongly classified the cakes as chocolate-covered biscuits taxed at the standard rate, instead of zero-rated cakes.
The taxman had argued that the refund would unjustly enrich M&S as 90% of the refund would have been passed on to M&S customers over the years.
But advocate general Juliane Kokott backed M&S: 'The objection that Marks & Spencer has been enriched cannot be invoked as long as it offends the principle of equal treatment.'
The UK’s legislation before 2005 did not treat businesses equally and therefore fell foul of community law, the advocate general said. Prior to 2005 these provisions applied only where businesses made regular payments of VAT to HMRC.
Unjust enrichment legislation allows a tax authority to limit or refuse repayment of VAT where businesses have incorrectly charged VAT.
The case now moves to the ECJ, which almost always follows the advocate general's opinion.
'This is not the first time that HMRC have been taken to task by the courts for an uneven playing field policy. A fundamental principle of EU VAT law is that taxpayers must be treated consistently and it will be interesting to see whether the full court agrees the AG’s opinion,' said KPMG partner Chris Fyles.
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