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
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
‘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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