After a 12-year struggle Marks & Spencer has finally won its battle with HM Revenue & Customs to recover £3.5m in overpaid VAT on chocolate teacakes.
The European Court of Justice today ruled in favour of Marks & Spencer, saying that it should be allowed to claim the VAT back.
The UK authorities had accepted that the High Street retailer had overpaid VAT on the teacakes for a number of years, but argued that repaying the full amount would 'unjustly enrich' Marks & Spencer as around 90% of the VAT cost had been passed on to customers.
Marks & Spencer argued that the defence of unjust enrichment was applied to its valid claim for wrongly paid tax but the same defence was not applied to block comparable claims made by its competitors, contravening the European law principles of equal treatment and fiscal neutrality.
The 'Battle of the Teacake' has been a tax epic, stretching over 12 years and involving 2 visits to the ECJ. Tony McClenaghan, head of indirect tax at Deloitte, which acted for M&S, described the ECJ decision as a 'sweet victory'.
'Commonsense has prevailed. It is unreasonable for different retailers to be treated differently in relation to similar transactions. The fact that the UK authorities changed the law in 2005 suggested that comparable situations had previously been treated differently,' McClenaghan said.
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