Deloittes paves way for Euro verdict on VAT limit

Europe could be the final battlefield for the three-year rule on VAT repayments after a report commissioned by Deloitte & Touche revealed major legal flaws in the Government diktat.

A Belgian team of EU law experts has drawn up a list of points to attack the controversial ruling, introduced without consultation on 18 July.

It is due to be formally introduced by the Chancellor in next month’s Budget.

Deloittes hopes its report, written by law professor Michel Waelbroeck, and sent to Customs & Excise and the European Commission, will scupper the legislation at the parliamentary committee stage. But experts believe the European courts will decide its fate.

The report says that the ruling breaches fundamental European legal principles of fairness and neutrality in taxation, and is contrary to the principles of legal certainty and natural justice.

Deloittes VAT partner John Kennedy said: ‘VAT is based on European law, domestic legislation is secondary, so this will ultimately end up with a Euro ruling.’

The report’s key finding is that there is no fundamental block to a time-limit on repayments. ‘But any limit should be preceded by a suitable transitional period,’ added Kennedy, ‘followed by parity between the limits for the Government and the taxpayer.’

Results from the first set of VAT tribunals to challenge the three-year rule are due next week. Leading tax lawyer Clare Mainprice told Accountancy Age she was confident of a favourable ruling for her case involving the Royal College of Obstetricians and Gynaecologists.