Federation of Technological Industries & Ors, R (on the application of) v Customs and Excise & Anor

On an application for permission involving fully argued issues of Community law, the court may require a substantial prospect of success, rather than merely an arguable case. Article 21(3) of the Sixth Directive permits joint and several liability only in the situations specified in Article 21(1) and (2). Article 22(8) permits obligations necessary to collect tax from the taxable person and prevent evasion, but does not authorise making a person liable for another trader’s VAT or requiring security for that liability. Challenges based on double taxation, taxable-person status and disproportionality failed. Convention compatibility generally requires assessment against the facts of the particular application, although the legislation was considered compatible in principle.

Fifty-three traders in mobile telephones and computer processing units and their trade body challenged provisions inserted into the Value Added Tax Act 1994 by sections 17 and 18 of the Finance Act 2003. The provisions permitted security to be required for VAT liabilities of suppliers and customers, and imposed joint and several liability for unpaid VAT concerning telephones and computers.

The claimants sought permission to seek declarations that the provisions were unauthorised by Community law and incompatible with the Convention, together with a reference to the European Court. The central questions concerned the scope of Articles 21(3) and 22(8) of the Sixth Directive and whether the provisions breached other Community-law and Convention principles.

1. Permission threshold. Although the ordinary threshold for judicial review is an arguable case, the court may impose a higher threshold where the issue is urgent, important and fully argued. Here the appropriate threshold was a substantial prospect of success.
2. Article 21(3). The phrase “in the situations referred to in paragraphs 1 and 2” confined the power to impose joint and several liability to the specified situations in which the Directive confers particular jurisdiction on Member States. It did not authorise joint and several liability in every case in which Article 21 identifies a person liable for VAT.
3. Article 22(8). The provision authorised obligations necessary for collection of tax due from the taxable person and prevention of evasion by that person. It did not authorise imposing liability on a third party for another person’s VAT or requiring security for that third party’s liability. The observations in Eismann v Ufficio Iva concerned formalities and did not enlarge that power.
4. The arguments based on Article 11 and Article 4 of the Sixth Directive failed. The legislation did not increase the taxable amount or impose double taxation, and it did not treat economically separate traders as a single taxable person. The obligations and rebuttable presumption were not disproportionate in the context of combating VAT fraud.
5. The Convention challenges were premature because compatibility ordinarily had to be assessed against the facts of the legislation’s application. In any event, the provisions afforded a fair balance, were sufficiently foreseeable, and provided effective rights of appeal. Article 6.1 did not apply to ordinary tax matters; the provisions and proceedings were civil rather than criminal even if Article 6.2 were engaged.
6. Permission was granted to seek a declaration that the provisions were unauthorised by Community law, and those issues were referred to the European Court with a request for expedition. The remaining grounds were rejected as lacking foundation. No interim relief was sought.