Local Authorities Mutual Investment Trust v Customs and Excise

A Member State may impose a reasonable time limit on late claims to deduct input VAT. The power may arise under Article 18(3) of the Sixth VAT Directive, which permits conditions and procedures for deductions not made in accordance with the ordinary rules. It may also arise from the domestic procedural autonomy recognised by Community law.

The limit must satisfy the principles of equivalence and effectiveness, and must be proportionate. A three-year limit for claiming input tax was not disproportionate, did not make the right to deduct ineffective, and did not infringe the principle of equivalence. It also did not breach the right to peaceful enjoyment of possessions under Article 1 of the First Protocol.

The appellant, a trustee managing property funds, sought to recover input VAT omitted from returns for accounting periods in 1998. The Commissioners refused the claim because it was made more than three years after the deadline for the relevant returns, applying regulation 29(1A) of the Value Added Tax Regulations 1995.

The VAT and Duties Tribunal dismissed the appeal. The appellant appealed under section 11(1) of the Tribunals and Inquiries Act 1992, arguing that the time limit was unauthorised by Articles 17 and 18 of the Sixth VAT Directive, contrary to Community-law principles, and incompatible with Article 1 of the First Protocol to the European Convention on Human Rights.

1. Appeal dismissed. Regulation 29(1A) was authorised by Article 18(3) of the Sixth VAT Directive. The expression conditions and procedures was wide enough to include time limits for deductions which had not been made under Articles 18(1) and 18(2). The travaux préparatoires supported that construction.
2. Even if Article 18(3) did not itself authorise time limits, Community law left the matter to national procedural law, subject to the principles in Rewe: the rules must be no less favourable than those governing comparable domestic claims and must not make the exercise of Community rights impossible or excessively difficult.
3. The three-year period was reasonable and proportionate. It served legal certainty, was not retrospective in its application to the claims in issue, and did not prevent the effective exercise of the right to deduct. Regulation 29(1A) applied generally to claims for deduction of input VAT and therefore did not infringe equivalence merely because no comparable revenue limitation period had been identified.
4. The criticism of regulation 29(1) did not affect regulation 29(1A). A national rule incompatible with directly effective Community law is not thereby invalid; it may instead require disapplication in an appropriate case. No such conclusion was necessary here.
5. The claim under Article 1 of the First Protocol also failed. Although a right to reimbursement of VAT may constitute a possession, the right in this case was always subject to a proportionate three-year limitation period. The period pursued the legitimate aim of legal certainty and did not constitute an unlawful interference.

1. High Court (Chancery Division): Lawrence Collins J dismissed the appeal under section 11(1) of the Tribunals and Inquiries Act 1992.
2. VAT and Duties Tribunal: dismissed the appeal against the Commissioners’ refusal of the input-tax claim. The decision was released on 18 February 2003.