The Minister for Economic Development of the States of Jersey, R (on the application of) v Revenue and Customs

The European Union legislation governing low value consignment relief establishes the permitted scope of VAT exemptions on imports. A member state may selectively withdraw the optional exemption for mail-order goods from a particular non-EU territory, provided the measure remains within the terms of the legislation.

The mandatory exemption cannot be removed by imposing a general condition directed at preventing abuse. Conditions may regulate the application of an exemption, but cannot disapply it altogether. Fiscal neutrality, equal treatment and proportionality do not require identical treatment of imports from different non-EU territories. Ordinary exploitation of a fiscal advantage is not, without more, abusive.

The States of Jersey and Guernsey sought declarations that a proposed amendment to the Value Added Tax (Imported Goods) Relief Order 1984 would be unlawful under European Union law. The amendment would withdraw low value consignment relief for goods sent from the Channel Islands under a distance-selling arrangement.

The dispute concerned the meaning and scope of the mail-order proviso in Article 23 of Council Directive 2009/132/EC, the permissible use of Article 1, and the relevance of fiscal neutrality, non-discrimination, proportionality, avoidance and abuse. The central issue was whether the United Kingdom could selectively withdraw the relief for mail-order imports from the Channel Islands.

1. Meaning of mail order. The phrase in Article 23 of Council Directive 2009/132/EC covered orders placed remotely by post, telephone, fax, email or online. Its essential features were remote ordering and delivery by the retailer to the customer. The proposed statutory phrase distance-selling arrangement was compatible with that meaning.
2. Scope of the Article 23 discretion. The detailed rules in the Union legislation conclusively determined how avoidance, abuse and distortion of competition were to be addressed. Article 23 permitted the United Kingdom to withdraw the optional relief for mail-order goods selectively. It could do so for goods between 10 and 22 euros and could also remove the relief for goods below 10 euros.
3. Article 1. Article 1 required member states to apply the exemptions laid down by the Directive. Conditions could ensure correct and simple application and prevent evasion, avoidance or abuse, but could not disapply the exemptions altogether. Article 1 therefore did not provide a freestanding power to withdraw the relief.
4. Abuse and ordinary trading activity. Round-tripping was abusive. However, ordinary Channel Island businesses accepting orders and supplying goods from the Islands were merely exploiting a fiscal advantage created by legislation of general application. That conduct was not abusive merely because the relief gave an economic incentive to trade from the Islands.
5. Fiscal neutrality and proportionality. The principles of fiscal neutrality, equal treatment and proportionality did not require the United Kingdom to treat imports from one non-EU territory in the same way as imports from another. Goods imported directly from non-EU territories were outside the relevant protection afforded to goods in free circulation within the Union.
6. The court declared that the proposed Finance Bill clause was not unlawful under European Union law. The Government was entitled to change its policy unless prohibited by that law.