Jersey Choice Ltd v His Majesty's Treasury

VAT charged on imported goods remains an internal fiscal measure where it applies within a general system of taxation to corresponding domestic and imported products. Even unlawful discrimination within that system does not convert the charge into a customs duty or charge having equivalent effect.

For VAT purposes, a territory excluded from the VAT area is a third territory although it belongs to the EU customs territory. EU law imposes no general obligation to treat different third territories equally. A trader established there therefore cannot invoke equal treatment or proportionality to demand the VAT treatment granted to another third territory. Rights to an effective remedy protect substantive EU rights but do not create them.

Jersey Choice Ltd sold low-value horticultural goods by mail order from Jersey to United Kingdom consumers. Section 199 of the Finance Act 2012 removed low value consignment relief from distance-selling imports from the Channel Islands while relief remained available for imports from other territories outside the EU VAT area.

The company claimed Francovich damages, alleging breaches of the free-movement provisions in articles 28, 30 and 34 TFEU and the EU principles of equal treatment, fiscal neutrality and proportionality. The High Court struck out the claim: [2020] EWHC 3258 (Ch). The Court of Appeal reversed the finding of abuse of process but otherwise upheld the strike-out: [2021] EWCA Civ 1941.

The central questions were whether the resulting VAT was a fiscal measure or a charge equivalent to a customs duty; whether a Jersey business could invoke general EU principles in relation to VAT treatment; and whether rights to effective judicial protection preserved the damages claim.

1. Appeal dismissed unanimously. Lord Lloyd-Jones and Lady Rose gave the judgment, with which Lord Briggs, Lord Leggatt and Lord Richards agreed. The VAT imposed after withdrawal of low value consignment relief was a fiscal measure governed by article 110 TFEU, not a customs duty or charge having equivalent effect governed by articles 28 and 30 TFEU.

2. The customs and fiscal regimes are mutually exclusive. A charge can be equivalent to a customs duty only where it affects imported products as such. Even then, it remains internal taxation if it forms part of a general system of internal dues applied systematically to product categories by objective criteria without regard to origin. The import VAT failed both requirements. Corresponding domestic supplies were subject to VAT, and the charge formed part of the harmonised VAT system. The withdrawal of an exemption expressly permitted by the Exemptions Directive 2009/132/EC did not change that characterisation.

3. Even if a fiscal charge discriminates unlawfully against imported goods, it does not move into the customs regime. Its legality and consequences remain governed by the fiscal rules. The Agricultural Flat Rate Scheme did not alter this conclusion. It was a conditional simplification scheme expressly permitted by the VAT legislation and had to be assessed as a whole.

4. Jersey was a third territory for VAT purposes. Articles 5, 6(1) and 30 of the Principal VAT Directive 2006/112/EC expressly excluded the Channel Islands from the VAT area and treated goods entering from them as imports, notwithstanding their inclusion in the EU customs territory. Article 110 TFEU did not apply to goods imported directly from such a territory.

5. The general principle of equal treatment did not oblige the United Kingdom to accord the Channel Islands the VAT treatment granted to other third territories. EU law contains no general rule requiring equal treatment of third countries or territories, and traders cannot invoke such a rule merely because differential external treatment affects their business. Proportionality likewise had no application to the VAT treatment of third territories outside the VAT area.

6. Article 19(1) TEU, article 47 of the Charter and article 1 of Protocol 1 to the Convention did not preserve the claim. Effective-remedy guarantees arise where a substantive right has been breached; they do not create such a right or breach. The pleaded claim therefore disclosed no realistic prospect of establishing a breach of EU law, and the strike-out stood.

1. United Kingdom Supreme Court: dismissed the appeal and affirmed the Court of Appeal's conclusion that the claim should be struck out: [2024] UKSC 5.
2. Court of Appeal: allowed the appeal on abuse of process but otherwise dismissed it, upholding the strike-out for absence of reasonable grounds: [2021] EWCA Civ 1941.
3. High Court: struck out the Francovich damages claim for disclosing no reasonable grounds and as an abuse of process: [2020] EWHC 3258 (Ch).