Totel Ltd v Commissioners for Her Majesty’s Revenue and Customs

The EU law principle of equivalence requires a context-specific comparison between procedures governing EU law claims and similar domestic claims. The court must examine the claims’ purpose and essential characteristics, with particular attention to the procedural rule under challenge. Differences connected with the underlying claims may prevent them from being true comparators.

VAT assessment appeals are not comparable with appeals concerning Income Tax, Capital Gains Tax or Stamp Duty Land Tax for this purpose. VAT traders ordinarily collect the tax from consumers, whereas taxpayers subject to those direct taxes bear the economic burden themselves. The principle of equivalence therefore did not invalidate the pay-first requirement under section 84 of the Value Added Tax Act 1994.

Totel Ltd sought to appeal VAT assessments without first paying or depositing the disputed tax. It could not establish the hardship required to disapply the pay-first condition in section 84 of the Value Added Tax Act 1994. Totel argued that the condition infringed the EU law principle of equivalence because appeals concerning Income Tax, Capital Gains Tax and Stamp Duty Land Tax were not subject to an equivalent condition.

The Court of Appeal, in [2016] EWCA Civ 1310, rejected the challenge. It held that the proposed domestic claims were not true comparators and that, in any event, other domestic tax appeals were subject to the same pay-first requirement.

The Supreme Court considered whether the proposed domestic tax appeals were true comparators, whether the pay-first condition was less favourable treatment, and the scope of the proviso that EU claims need not receive the most favourable procedure available to comparable domestic claims.

1. Appeal dismissed unanimously. Lord Briggs delivered the judgment, with which Lady Hale, Lord Sumption, Lord Carnwath and Lord Hodge agreed. Totel had not identified a true domestic comparator capable of engaging the principle of equivalence in relation to the pay-first requirement.

2. The comparator inquiry is context-specific. A national court must examine the purpose and essential characteristics of the allegedly similar claims. It must pay particular attention to the procedural provision said to confer less favourable treatment. The principle of equivalence does not require identical procedures for claims whose procedural differences are attributable to, or connected with, material differences in the underlying claims.

3. Appeals against assessments to Income Tax, Capital Gains Tax and Stamp Duty Land Tax were not true comparators with VAT appeals in this context. A VAT trader ordinarily collects the economic burden of the tax from consumers and accounts for it to HMRC. By contrast, taxpayers subject to the proposed direct-tax comparators pay from their own resources. That distinction was logically connected with requiring a VAT trader, absent hardship, to pay or deposit the disputed tax before pursuing an appeal. Proof that the requirement had originally been enacted for that reason was unnecessary.

4. The exceptions to the VAT trader’s paradigm role as tax collector did not alter the analysis. Cross-border acquisitions and imports formed part of the overall VAT scheme. Nor did cases in which a trader had not charged VAT, or the limited analogy with employers operating PAYE, make Income Tax a true comparator. Totel’s proposed comparison of all tax-assessment appeals operated at an impermissibly high level of generality.

5. Obiter, if a true comparator lacking a pay-first rule existed, the VAT requirement would in principle constitute less favourable treatment. It was additional to the separate collection and postponement regime and required a trader unable to prove hardship to lodge the disputed sum before commencing an appeal.

6. Further obiter, the no-most-favourable-treatment proviso forms part of the principle of equivalence. It requires EU claims to receive treatment broadly as favourable as that available for true domestic comparators, rather than the best available treatment. It permits a member state to use rules already applied to similar domestic claims, provided that EU claims are not selected for inferior treatment. Exceptionally severe rules adopted for reasons peculiar to another claim would not justify their application, although such a claim would probably not be a true comparator.

1. United Kingdom Supreme Court: In [2018] UKSC 44, unanimously dismissed Totel’s appeal because no true domestic comparator had been established.
2. Court of Appeal: In [2016] EWCA Civ 1310, rejected the equivalence challenge. It held that the proposed domestic taxes were not true comparators and that other domestic tax appeals were subject to the same pay-first requirement.
3. Upper Tribunal (Tax and Chancery Chamber): Totel first raised the equivalence challenge when successfully seeking permission to appeal to the Court of Appeal. The earlier procedural history was described as irrelevant.