Totel Ltd v Revenue And Customs

The EU-law principle of equivalence does not require a Member State to extend its most favourable procedural rules to every EU-derived tax claim. It is sufficient that the claim is not singled out for the worst treatment and that the rule applies to similar domestic claims. In tax matters, comparison is constrained by the requirement to consider the same kind of charges or dues. VAT appeals are not generally comparable with income-tax or SDLT appeals merely because they reach the same tribunal. VAT’s distinct consumption-based structure and input-deduction mechanism are relevant. Since prepayment applied to several other indirect-tax appeals, the VAT prepayment rule did not breach the principle of equivalence.

Totel, a VAT-registered trader, sought to appeal HMRC’s determination that it owed £1,474,351.38 in VAT. Section 84(3) of the VAT Act 1994 required payment or deposit of the disputed amount before the appeal could be entertained. Totel’s hardship application had failed, and that issue was not appealed.

The Upper Tribunal (Tax and Chancery Chamber), in a decision dated 27 October 2014, granted permission to appeal on a new EU-law argument. Totel contended that the VAT prepayment rule infringed the principle of equivalence because income-tax and SDLT appeals could be pursued without prepayment. The central issues were whether those appeals were similar domestic actions and whether the rule required justification.

The appeal was dismissed unanimously. Arden LJ gave the leading judgment, with Irwin and Henderson LJJ agreeing.

1. The principle of equivalence requires rules governing recovery of tax levied contrary to EU law to be no less favourable than those governing similar domestic actions. Similarity is assessed by reference to purpose, cause of action and essential characteristics. The inquiry also requires consideration of justification where materially different procedural rules apply. The tax context adds the requirement that the comparison concern the same kind of charges or dues. [2012] 2 AC 337; [1998] ECR I-4951.
2. The no most favourable treatment proviso is an established feature of the principle. A Member State may apply any procedural rules already applied to similar claims, provided EU-derived claims are not singled out for the worst treatment. The VAT prepayment rule under section 84(3) of the VAT Act 1994 also applied to several other indirect-tax appeals. Totel therefore failed on this ground alone, and HMRC did not need to justify the more favourable treatment available in some income-tax and SDLT appeals.
3. Alternatively, VAT appeals were not comparable with income-tax or SDLT appeals merely because all were heard by the First-tier Tribunal. VAT is a consumption tax accounted for by traders through a chain of transactions, with deductions for input tax. Repayment claims therefore affect the operation of VAT in a way that repayment claims concerning other taxes do not. The approaches in Marks & Spencer and the Court of Appeal’s judgment in Littlewoods were valid. The Advocate General’s opinions in San Giorgio and Littlewoods had not been adopted by the CJEU and could not establish the current state of EU law. [1999] STC 205; [2012] S.T.C. 1714.
4. A reference to the CJEU was unnecessary because the conclusion followed consistently from existing jurisprudence. The appeal was dismissed.

1. Court of Appeal (Civil Division) dismissed Totel’s appeal on 20 December 2016.
2. Upper Tribunal (Tax and Chancery Chamber), Mr Justice Nugee, decided the matter on 27 October 2014. Permission was granted to appeal on the EU-law equivalence issue.