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N2-8. EU law
INTERPRETING EU LAW
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Strict interpretation of VAT exemptions (particularly ones not provided for in EU law)
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"[17] The following points are of relevance (see the Court of Appeal judgment at paras 17, 19 and 20):
(1) The exemptions contained in the PVD (and formerly the Sixth Directive) are independent concepts of EU law.
(2) The terms used in the PVD to specify exemptions must be interpreted strictly because they constitute exceptions to the general rule that VAT is to be levied on all services supplied for consideration by a taxable person.
(3) Where there is a specific exemption (here for the management of credit but only by the grantor of that credit), a broader exemption (here, article 135(1)(d)) should not be interpreted so widely as to undermine the deliberate legislative choice made in restricting other exemptions.
(4) Conversely, the phrase “debt collection” in article 135(1)(d) must be construed broadly because it is an exception to the exemption.
[18] What is meant by a strict interpretation was explained by Chadwick LJ in Expert Witness Institute v Customs and Excise Comrs [2001] EWCA Civ 1882, [2002] 1 WLR 1674, [2002] STC 42 as follows:
“17. … A ‘strict’ construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption; so that, if the court is left in doubt whether a fair interpretation of the words of the exemption cover the supplies in question, the claim to the exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question.”
[19] The purpose of the financial services exemptions, including article 135(1)(b) and (d), has been stated to be to alleviate the difficulties of determining the consideration for such services and therefore the tax base for VAT liability and also to avoid an increase in the cost of consumer credit - see, for example, Velvet & Steel Immobilien und Handels GmbH v Finanzamt Hamburg-Eimsbüttel (Case C-455/05) [2008] STC 922 at para 24." (Target Group Ltd v. HMRC [2023] UKSC 35)
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"[38] It is well established that zero-rating provisions must be interpreted strictly because they constitute exemptions to the general principle that all supplies of goods and services for consideration by a taxable person should be subject to VAT. They should not, however, be interpreted so strictly as to deprive the exemption of its intended effect. As stated by Lord Kitchin in SAE Education at para 42:
"In accordance with well-established principles, the terms used in articles 131 to 133 to specify exemptions from VAT must be construed strictly. Nevertheless, they must also be construed in a manner which is consistent with the objectives which underpin them and not in such a way as to deprive them of their intended effects."
See also Werner Haderer v Finanzamt Wilmersdorf Case C-445/05, [2008] STC 2171, para 18.
[39] The need for strict interpretation is particularly marked where, as in this case, it does not involve mandated EU exemptions, but rather national law exceptions tolerated by EU law within the constraints of the EU standstill provision. As explained by the Advocate General in Talacre Beach, national exceptions must be “interpreted narrowly” (para 17) and, because they are not directed at the same objectives as EU mandated exemptions, “it is necessary to take particular care that the exceptions are not extended” (para 42). The need for a strict interpretation was endorsed by the CJEU (para 23)." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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- Not construed so as to deprive exemption of intended effect
“[17] The terms used to specify the exemptions under Article 13 of the Sixth Directive are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all supplies of services for consideration. However, that requirement of strict interpretation does (, paragraph 17, and , paragraph 16). They must be interpreted in the light of the context in which they are used and the scheme of the Sixth Directive, (see, to that effect, , paragraph 18, and Case C-428/02 [2005] ECR I‑1527, paragraph 28).” (Cantebury Hockey Club v. HMRC C-253/07)
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CONFLICT BETWEEN DOMESTIC LAW AND EU LAW
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Duty of consistent interpretation
"[72] In Marleasing the CJEU held at [8]:
“…in applying national law, whether the provisions in question were adopted before or after the directive, the national court called upon to interpret it is required to do so, as far as possible, in the light of the wording and the purpose of the directive in order to achieve the result pursued by the latter and thereby comply with the third paragraph of Article 189 of the Treaty.”
[73] In Test Claimants in the FII Group Litigation v HMRC [2012] UKSC 19, [2012] 2 AC 337, Lord Sumption said at [176]:
“Marleasing, at any rate as it has been applied in England, is authority for a highly muscular approach to the construction of national legislation so as to bring it into conformity with the directly effective Treaty obligations of the United Kingdom.”
[74] In Wilkinson v Churchill Insurance Co Ltd [2012] EWCA Civ 1166, [2013] 1 All ER 1146 at [50], Aikens LJ said that “the obligation on the English courts to construe domestic legislation consistently with Community law obligations is both broad and far-reaching” and went on to restate the principles which should be applied when considering a conforming construction of a legislative provision which infringes EU law. Those principles were then summarised by Sir Andrew Morritt C in Vodafone 2 v HMRC [2010] Ch 27 at [37]-[32], and that summary was in turn approved by the Supreme Court In Swift v Robertson [2014] UKSC 50; [2014] 1WLR at [21].
[75] The parties agreed that the principles were as set out in the list below; this excludes the citations of authorities within the original judgment, but includes certain linking and clarificatory phrases added by Henderson J (as he then was) in Prudential Assurance Co Ltd v HMRC [2013] EWHC 3249 (Ch) [2014] STC 1236 at [101]:
(1) the obligation is not constrained by conventional rules of construction;
(2) it does not require ambiguity in the legislative language;
(3) is not an exercise in semantics or linguistics;
(4) it permits departure from the strict and literal application of the words which the legislature has elected to use;
(5) it also permits the implication of words necessary to comply with Community law obligations;
(6) the precise form of the words to be implied does not matter;
(7) it is only constrained to the extent that the meaning should “go with the grain of the legislation” and be compatible with the underlying thrust of the legislation being construed;
(8) it must not lead to an interpretation being adopted which is inconsistent with a fundamental or cardinal feature of the national legislation, since this would cross the boundary between interpretation and amendment; and
(9) cannot require the courts to make decisions for which they are not equipped or give rise to important practical repercussions which the court is not equipped to evaluate.
[76] It follows from these principles that Para 4(1) must be read consistently with Articles 73 and 79 of the PVD, so far as that is possible without breaching principles (7) to (9) above." (Talktalk Telcom Limited v. HMRC [2023] UKFTT 12 (TC), Judge Redston)
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- Whether conforming interpretation possible does not depend on what is required (adding words in, deleting etc.) but substance
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[123] Attaching decisive importance to the precise adjustments required to the language of any particular provision would reduce the exercise envisaged by section 3(1) to a game where the outcome would depend in part on the particular turn of phrase chosen by the draftsman and in part on the skill of the court in devising brief formulae to make the provision compatible with Convention rights. The statute book is the work of many different hands in different parliaments over hundreds of years and, even today, two different draftsmen might choose different language to express the same proposition. In enacting section 3(1), it cannot have been the intention of Parliament to place those asserting their rights at the mercy of the linguistic choices of the individual who happened to draft the provision in question. What matters is not so much the particular phraseology chosen by the draftsman as the substance of the measure which Parliament has enacted in those words. Equally, it cannot have been the intention of Parliament to place a premium on the skill of those called on to think up a neat way round the draftsman's language. Parliament was not out to devise an entertaining parlour game for lawyers, but, so far as possible, to make legislation operate compatibly with Convention rights. This means concentrating on matters of substance, rather than on matters of mere language.
[124] Sometimes it may be possible to isolate a particular phrase which causes the difficulty and to read in words that modify it so as to remove the incompatibility. Or else the court may read in words that qualify the provision as a whole. At other times the appropriate solution may be to read down the provision so that it falls to be given effect in a way that is compatible with the Convention rights in question. In other cases the easiest solution may be to put the offending part of the provision into different words which convey the meaning that will be compatible with those rights. The preferred technique will depend on the particular provision and also, in reality, on the person doing the interpreting. This does not matter since they are simply different means of achieving the same substantive result…” (Ghaidan v. Godin-Menoza [2004] UKHL 30, Lord Rodger with whom Lord Steyn (§37) and Baroness Hale (§145) agreed)
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- May involve reading in, rewording or deletion
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“[39] Without in any way suggesting that it is incumbent on he who contends for a conforming interpretation to spell out exactly what it is, for that would be to gainsay the proposition set out in paragraph 37(f), it undoubtedly assists in the consideration of whether or not it is a permissible interpretation to see on paper how it is suggested that it would be effected, whether by interpolation, deletion, rewording or otherwise..." (Vodafone 2 v. HMRC [2009] EWCA Civ 446)
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- Only limit is that it must go with the grain of the legislation and not require choices court not equipped to make
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"[38] Counsel for HMRC went on to point out, again without dissent from counsel for V2, that:
"The only constraints on the broad and far-reaching nature of the interpretative obligation are that:
(a) The meaning should "go with the grain of the legislation" and be "compatible with the underlying thrust of the legislation being construed." (Per Lord Nicholls in Ghaidan at 33; Dyson LJ in EB Central Services at 81) An interpretation should not be adopted which is inconsistent with a fundamental or cardinal feature of the legislation since this would cross the boundary between interpretation and amendment; (See Ghaidan per Lord Nicholls at 33; Lord Rodger at 110-113; Arden LJ in IDT Card Services at 82 and 113) and
(b) The exercise of the interpretative obligation cannot require the courts to make decisions for which they are not equipped or give rise to important practical repercussions which the court is not equipped to evaluate. (See Ghaidan per Lord Nicholls at 33; Lord Rodger at 115; Arden L in IDT Card Services at 113.)" (Vodafone 2 v. HMRC [2009] EWCA Civ 446)
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- Difficulties ascertaining practical repercussions not to be overstated
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"[89] The Respondents’ next objection was that the conforming interpretation proposed would lead to far-reaching practical repercussions which this Tribunal is not equipped to evaluate, thereby crossing the boundary between interpretation and amendment in the way set out in paragraph 115 of the speech of Lord Rodger of Earlsferry in Ghaidan v Godin-Mendoza [2004] UKHL 30. They argue that the question whether a loss is “deducted” is not straightforward in many cases. For example, the losses at issue in this appeal are subject to a “recapture” mechanism in the Netherlands. If it is known that the losses are to be recaptured in one, two or five years, are those losses “deducted” or not? By contrast, the wording of s403D(1)(c) asks a question about legal possibilities which can be answered in a straightforward way by reference only to the relevant nonUK law.
[90] We reject the Respondents’ argument, that difficulties associated with ascertaining whether a loss has been “deducted” are so complicated as to require specific and expanded legislative provision. That there is no need for such specific and expanded legislative provision is demonstrated by the fact that, when legislating in s30 of Finance Act 2013, Parliament gave no guidance on the meaning of the word “deducted”. Having had the opportunity to consider the matter, Parliament evidently concluded that the interpretation and application of this concept can appropriately be left to the courts." (HMRC v. Volkerrail Plant Ltd [2022] UKUT 78 (TCC), Roth J and Judge Jonathan Richards)
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- Reading in additional exceptions permitted
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"[45] In my view section 3 requires the court to subordinate the niceties of the language of section 41(3)(c), and in particular the touchstone of coincidence, to broader considerations of relevance judged by logical and common sense criteria of time and circumstances. After all, it is realistic to proceed on the basis that the legislature would not, if alerted to the problem, have wished to deny the right to an accused to put forward a full and complete defence by advancing truly probative material. It is therefore possible under section 3 to read section 41, and in particular section 41(3)(c), as subject to the implied provision that evidence or questioning which is required to ensure a fair trial under article 6 of the Convention should not be treated as inadmissible. The result of such a reading would be that sometimes logically relevant sexual experiences between a complainant and an accused may be admitted under section 41(3)(c). On the other hand, there will be cases where previous sexual experience between a complainant and an accused will be irrelevant, eg an isolated episode distant in time and circumstances. Where the line is to be drawn must be left to the judgment of trial judges. On this basis a declaration of incompatibility can be avoided. If this approach is adopted, section 41 will have achieved a major part of its objective but its excessive reach will have been attenuated in accordance with the will of Parliament as reflected in section 3 of the 1998 Act. That is the approach which I would adopt." (R v. A [2001] UKHL 25, Lord Steyn)
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"[44] To my mind the extension of the exceptions to the CFC Legislation for which counsel for HMRC contends is as permissible as either of those which found favour in Ghaidan or IDT. It does not alter the impact on other CFCs which are not excepted by any other exception. Certainly it provides an additional exception but, as counsel for HMRC submitted, the grain or thrust of the legislation recognises that the wide net cast by s.747(3) is intended to be narrowed by s.748. Further the terms of various exceptions were not intended to be either mutually exclusive or immutable as the ability to amend the conditions contained in various parts of Schedule 25 and the terms of paragraph (e) show. For my part I would reject this objection to the conforming interpretation put forward by counsel for HMRC." (Vodafone 2 v. HMRC [2009] EWCA Civ 446)​
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“[114]…As the Ghaidan case shows it is not necessary to find a simple linguistic device for this. It also shows that one of the ways of interpreting a provision "so far as possible" is to write in words. In my judgment the appropriate interpretation is to read in words to widen the disapplication in para 3(3) of the disregard in para 3(2) so that the disapplication applies where the disregard would result in the non-taxation, contrary to the objectives of the Sixth Directive specified in paragraph 95 above, of a taxable supply of goods or services in the United Kingdom. In my judgment it is unnecessary for this court to attempt to splice precise words into the language used by Parliament in schedule 10A as if it were itself the Parliamentary drafter. As the Ghaidan case shows, it is not an objection to interpretation of this nature that it amends the language used by Parliament.” (HMRC v. IDT Card Services Ireland Ltd [2006] EWCA Civ 29, Arden LJ)
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- Retrospectivity not a valid objection
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"[87] That introduces one of the Respondents’ objections to HMRC’s proposed conforming interpretation set out in paragraph 86, namely that it impermissibly brings forward the effect of changes made by s30 of the Finance Act 2013. In the Respondents’ submission, Parliament legislated for those amendments to have effect only for accounting periods commencing on or after 1 April 2013. The Tribunal should not, under the guise of conforming interpretation, give legislation retrospective effect.
[88] We reject that submission. The process by which courts and tribunals interpret statutes inevitably results in what can loosely be termed “retrospective” effect since that process results in the true meaning of the statute being revealed only some time after it was enacted. That effect would be no more pronounced in this case simply because, as events turned out, Parliament chose to legislate in s30 of Finance Act 2013." (HMRC v. Volkerrail Plant Ltd [2022] UKUT 78 (TCC), Roth J and Judge Jonathan Richards)
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Conforming interpretation limited to what is required to remedy the defect
"[128] We accept the submission of [Counsel for HMRC] that the exercise the courts have to undertake is first to identify the manner in which UK domestic legislation is incompatible with EU law. Having done so, the courts can then consider what is required to remedy the defect. The court can then consider whether this can be done by adopting a conforming interpretation, and if so its terms. If it cannot, then the court moves on to consider disapplication, and the effect of the disapplication.
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[140 In determining whether a conforming interpretation is available, we need to consider whether a muscular approach to interpretation is able to remedy the breach of EU law. In adopting a conforming interpretation, we cannot go beyond what is necessary to remedy the breach (see Re S). The precise form of words does not matter, and we do not need to engage in legislative drafting." (Trustees of the Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 [2024] UKUT 319 (TCC), Rajah J and Judge Aleksander)
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Conforming interpretation only applies to cases where otherwise there would be a breach
"[114] The proper approach to construction is that legislation should be read and given effect in a particular case according to its ordinary meaning, unless the person who is affected by it can show that this would be incompatible with their Convention rights under the HRA or some provision of EU law as applied to their case. Only then do the special interpretive obligations under section 3(1) of the HRA or under the Marleasing principle come into play to authorise the court to search for a conforming interpretation at variance with the ordinary meaning of the legislation. This means that the same legislative provision might be given a different interpretation in different cases, depending on whether Convention rights or EU law are applicable in the case or not. Although at first glance this might seem odd, in fact it is not. It simply reflects the fact that in the one case circumstances are such that an additional interpretive obligation has to be taken into account, but in the other case no such obligation is in play: see R (Hurst) v London Northern District Coroner [2007] UKHL 13; [2007] 2 AC 189, para 1 (Lord Bingham of Cornhill), paras 9 and 12-15 (Lord Rodger) and para 52 (Lord Brown of Eaton-under-Heywood); and Gingi v Secretary of State for Work and Pensions [2001] EWCA Civ 1685; [2002] 1 CMLR 20, paras 41-47 per Arden LJ (as she then was). If the position were otherwise, Convention rights and rights under EU law would be given disproportionate effect in domestic law, and statutory interpretation would become an exercise in the imaginative construction of theoretical cases in which such rights might be in issue in order to change the interpretation of legislation in cases where they are not." (R (oao Z) v. Hackney LBC [2020] UKSC 40)
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- Must identify precisely the respect in which UK law is not compliant with EU law
"[134] We find that the imposition of an exit tax under s80 TCGA is not the aspect of UK domestic law that infringes the EU law rights of the Trustees. Rather it is the failure of UK domestic law to provide for deferral of the payment of that liability. The breach (in the case of the Trustees) is in s59B TMA. This is the finding correctly reached by Judge Mosedale in Panayi FTT at [92]. A similar analysis in respect of the corresponding corporation tax provisions applies to Redevco." (Trustees of the Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 [2024] UKUT 319 (TCC), Rajah J and Judge Aleksander)
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- Removing judge made gloss on language to avoid breach of EU law, even if a more limited legislative scheme could lawfully have been enacted
"[50] On its face, section 23 of the Inheritance Tax Act does not impose any restriction on the free movement of capital. In particular, it does not discriminate between gifts to charities governed by the law of the United Kingdom and gifts to charities governed by the law of other EU member states or third countries. It is, on its face, entirely compliant with article 56 TEC. That is so even if section 272 of the Inheritance Tax Act and section 989 of the Income Tax Act are taken into account, since those provisions, on their face, are equally non-discriminatory.
[51] The only relevant restriction which existed at any material time, and with which this appeal is concerned, is the restriction imposed by the judicial gloss which was placed on the words now found in section 989 of the Income Tax Act in the case of Dreyfus [1956] AC 39: a restriction which, when incorporated into section 23 of the Inheritance Tax Act, has the effect of confining relief under that provision to trusts governed by the law of a part of the United Kingdom and subject to the jurisdiction of United Kingdom courts. There can be no doubt that the Dreyfus gloss on the language of section 989 of the Income Tax Act, as applied to section 23,is incompatible with article 56 TEC. It is plain that the restriction of relief from inheritance tax to trusts governed by the law of a part of the United Kingdom cannot be justified under EU law.
[52] Article 56 TEC is directly applicable as law in the United Kingdom, and must be given effect in priority to inconsistent national law, whether judicial or legislative in origin. It follows that the Dreyfus gloss on the language of section 989 of the Income Tax Act cannot be applied to section 23 in situations falling within the scope of article 56. The resultant position is as set out in para 49 above: applying section 23 without incorporating the Dreyfus gloss, there is no relevant restriction on the availability of relief beyond the conditions appearing on the face of the provision. That result is in conformity with article 56. Since it is undisputed that the Coulter Trust satisfied those conditions at the relevant time, it follows that it qualifies for the relief.
[53] That is the conclusion which the Court of Appeal should have reached, once it had decided that the Dreyfus gloss on the language of section 989 of the Income Tax Act, if incorporated into section 23 of the Inheritance Tax Act, imposed a restriction which was incompatible with article 56. Having reached that decision, the court could not apply that entirely judge-made restriction, and therefore had to apply section 23 without the gloss placed on the language used in section 989 of the Income Tax Act in the Dreyfus case. It would then have arrived at a result which complied with article 56.
[54] With great respect to the Court of Appeal, it should not have concerned itself with a hypothetical restriction concerned with the existence of mutual assistance agreements, even if it considered that such a restriction might have been justifiable under EU law and might have been imposed by Parliament. The fact was that there was no such restriction in existence. Neither section 23 of the Inheritance Tax Act nor section 989 of the Income Tax Act made relief for trusts in third countries conditional on there being a mutual assistance agreement in place. The fact that such a restriction, if it had existed, might have been in conformity with EU law did not mean that it could be imposed by the court, by means of a purported interpretation of the language used in section 23." (Routier v. HMRC [2019] UKSC 43)
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No interpretation against the grain of the UK legislation
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"[94] The CJEU returned to the limits of Marleasing in case C-268/06 Impact v Minister for Agriculture and Food [2008] 2 CMLR 47 at [100]:
"However, the obligation on a national court to refer to the content of a directive when interpreting and applying the relevant rules of domestic law is limited by general principles of law, particularly those of legal certainty and non-retroactivity, and that obligation cannot serve as the basis for an interpretation of national law contra legem."
[95] The expression "contra legem" means "against the law". In the context of the Marleasing principle, the content of that phrase was explained by Advocate General Bot in Dansk Industri (DI) v Estate of Karsten Eigil Rasmussen (Case C-441/14), [2016] 3 CMLR 27 at [68]:
"The Latin expression 'contra legem' literally means 'against the law'. A contra legem interpretation must, to my mind, be understood as being an interpretation that contradicts the very wording of the national provision at issue. In other words, a national court is confronted by the obstacle of contra legem interpretation when the clear, unequivocal wording of a provision of national law appears to be irreconcilable with the wording of a directive. The Court has acknowledged that contra legem interpretation represents a limit on the obligation of consistent interpretation, since it cannot require national courts to exercise their interpretative competence to such a point that they substitute for the legislative authority."
[96] He distinguished, in this connection, between national law laid down by case law on the one hand, and law enacted by the legislature on the other. He seems to me to have taken the view that to contradict "the very wording" of national legislation would amount to an interpretation contra legem. The court drew that distinction at [34]:
"Accordingly, the national court cannot validly claim in the main proceedings that it is impossible for it to interpret the national provision at issue in a manner that is consistent with EU law by mere reason of the fact that it has consistently interpreted that provision in a manner that is incompatible with EU law."
[97] If a proposed interpretation of national law goes beyond that limit, then the national court may be required to disapply the offending provision: Dansk Industri at [37].
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[106] HMRC's first suggestion is, in effect, to replace "any member state" with "the United Kingdom". I do not consider that the Marleasing principle entitles a court to adopt an interpretation which is in direct contradiction to the words that Parliament has used. Moreover, section 18 (7) specifically contemplates a "warehousing regime" as including movements between warehouses in different member states. In Advocate Elmer's words, this suggestion invites us to read "A" as "B". HMRC's first suggestion would, in my judgment, be contra legem. I note, however, that this amendment has in fact been made by Parliament (see Taxation (Cross Border Trade) Act 2018 Schedule 8 para 16 (6) (d); but only with effect from 31 December 2020). The suggested conforming construction would have retrospective effect, although Parliament has expressly decided that it should not.
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[109] In my judgment, although the UK has incorrectly widened the permissible scope of the exemption, the Marleasing principle does not allow that error to be corrected. Any necessary change would have to have been made by legislation." (HMRC v. Ampleaward Limited [2021] EWCA Civ 1459)
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"[78] Mr Hitchmough said that it was a “fundamental” and “cardinal” feature of Para 4(1) that consideration was deemed to be reduced by the offered discount, irrespective of whether or not the customer made the payment promptly so as to secure that discount. In his submission, any construction of Para 4(1) that stripped it of that feature would “go entirely against the grain of the legislation”. He added that Judge Morgan had come to the same conclusion in Virgin Media FTT when she said at [230]:
“My view is that the thrust of the legislation in this case is (and indeed the intended meaning of Para 4(1) could hardly be clearer) that the consideration on which VAT is to be charged is to be reduced where supplies are made on terms allowing or providing for a discount for prompt payment by the amount of the discount whether or not the discount provided for is in fact paid. To adopt an interpretation (whether by reading in words or otherwise) that the effect of Para 4(1) is that the relevant consideration is reduced only where a discounted sum is in fact paid would, therefore, go against the grain or thrust of the provision Parliament decided to enact.”
[79] Again, we agree with Judge Morgan for the reasons she gave." (Talktalk Telcom Limited v. HMRC [2023] UKFTT 12 (TC), Judge Redston)
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- Presumption that implementing legislation was intended to fulfil entirely the UK's obligations
"[107] There is, however, also another way of answering the critical question, one that I have concluded that I prefer. There is no dispute that the WTR were enacted solely and deliberately for the purpose of implementing the requirements of the Directive; and I agree with Mr Ford and Mr Tolley that the Pfeiffer presumption requires the court to presume that the United Kingdom government intended by the WTR to fulfil entirely the obligations arising under the Directive. That presumption also encompasses an intention to fulfil even those requirements of the Directive which were not apparent at the time of the enactment of the Directive, but which only became clear by later elucidation by the CJEU. Since the enactment of the WTR, the CJEU has explained the true requirements of article 7, an explanation of which the United Kingdom government could not reasonably have been aware when it enacted the WTR.
[108] In fact, however, at least in the case of most types of worker, the WTR do provide for the 'normal remuneration' measure (including by reference to the commission they earn) for the purpose of calculating holiday pay. So far as counsel are aware, there are just two, apparently anomalous, exceptions to that, namely in relation to (i) workers such as Mr Lock employed on terms to which section 221(2) applies, and for whom their commission payments are not taken into account in the calculation; and (ii) workers with non-guaranteed overtime. At least as to the former class, it is by no means clear how apparent the existence of this exception was when the WTR were enacted: it was not until four years later that the point was explained by Evans.
[109] Even given the Pfeiffer presumption, I readily accept, however, that it does not automatically and necessarily follow that a conforming interpretation of implementing domestic legislation will be possible in every case. It is, I consider, still necessary to apply an objective assessment as to whether a legislative choice has been made that is directly at odds with the requirements of the Directive. Mr Ford was, I consider, correct to accept that had the WTR expressly and unambiguously provided that a worker engaged on Mr Lock's terms was not to have commission taken into account when calculating his holiday pay, then Mr Lock would have no case.
[110] In my view, however, that cannot be said in relation to the WTR. Rather, I would regard their provisions as more consistent with the legislature simply not having foreseen the particular problem that was in due course to arise with the subsequent decisions of the CJEU as to the true sense of article 7. I regard the case as in line with the type of circumstances that Arden LJ was considering in the IDT Card Services case, at para 113." (British Gas Trading Limited v. Lock [2016] EWCA Civ 983)
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- Grain includes underlying policy
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“[35]…But the social policy underlying the 1988 extension of security of tenure under paragraph 2 to the survivor of couples living together as husband and wife is equally applicable to the survivor of homosexual couples living together in a close and stable relationship. In this circumstance I see no reason to doubt that application of section 3 to paragraph 2 has the effect that paragraph 2 should be read and given effect to as though the survivor of such a homosexual couple were the surviving spouse of the original tenant. Reading paragraph 2 in this way would have the result that cohabiting heterosexual couples and cohabiting heterosexual couples would be treated alike for the purposes of succession as a statutory tenant. This would eliminate the discriminatory effect of paragraph 2 and would do so consistently with the social policy underlying paragraph 2. The precise form of words read in for this purpose is of no significance. It is their substantive effect which matters.” (Ghaidan v. Godin-Menoza [2004] UKHL 30, Lord Nicholls)​
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- May be significant that legislation already recognises some exceptions to general rule
“[44]…Certainly it provides an additional exception but, as counsel for HMRC submitted, the grain or thrust of the legislation recognises that the wide net cast by s.747(3) is intended to be narrowed by s.748. Further the terms of various exceptions were not intended to be either mutually exclusive or immutable as the ability to amend the conditions contained in various parts of Schedule 25 and the terms of paragraph (e) show. For my part I would reject this objection to the conforming interpretation put forward by counsel for HMRC.” (Vodafone 2 v. HMRC [2009] EWCA Civ 446)
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“[133]…I acknowledge that to disapply the disregard in favour of Customs & Excise in this case would be to apply the disapplication, in the form it is drafted, for a different purpose from that for which it was drafted. In that sense, it does go against the grain of provisions which are based on the principle that VAT is to be levied on the supplier of telecommunications services rather than the supply of the credit vouchers. The presence of paragraph 3(3) does, however, at least demonstrate that the disregard in paragraph 3(2) is not to be universal and that there are intended to be situations, if the result would otherwise be to permit escape from VAT, in which the disregard does not apply.” (HMRC v. IDT Card Services Ireland Ltd [2006] EWCA Civ 29, Pill LJ)
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No interpretation contra legem
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- Contra legem refers to the grain rather than the wording of the legislation
"[101] Another element of the contra legem principle reflects the acceptance by the CJEU that, when engaging in a conforming interpretation exercise, a national court may find it impossible to adopt a conforming interpretation when 'the clear unequivocal wording of a provision of national law appears to be irreconcilable with the wording of a directive' (see the Opinion of Advocate General Bot in Dansk, para 68). Mr Cavanagh relied on that in support of his submission that this court is faced by just such a problem. This is a case, he says, in which the WTR adopted a statutory scheme in the shape of the incorporated provisions of the ERA; and the plain meaning of the provision relevant to this case, namely section 221(2), presents an insurmountable barrier to an interpretation of the WTR conforming with article 7.
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[103] What emerges from Ghaidan and the summary in Vodafone 2, the latter having since been endorsed by the Supreme Court in Swift and Nolan, is that the United Kingdom has dealt with the contra legem principle in a manner that is manifestly more in line with the EU objective of conforming interpretation at member state level than might be the case by anything approaching a rigid application of the principle summarised by Advocate General Bot in Dansk. When faced with the question of whether a conforming interpretation can be adopted, the courts of the United Kingdom do not confine themselves to a consideration of the literal meaning of the language that may appear to stand in their way; they approach the task by reference to the broader considerations of whether a conforming interpretation will be in line with the grain or underlying thrust of the legislation. That is an approach that ought, I would think, to attract nothing but commendation by the CJEU.
[104] I do not, therefore, derive assistance from Mr Cavanagh's contra legem submissions. In my view the critical question comes down to whether the conforming interpretation of the WTR for which Mr Lock contends is or is not within the grain or underlying thrust of that legislation. If it is, I consider it ought to follow that the interpretation favoured by the tribunals below is one this court should uphold. If it is not, a conforming interpretation is not possible." (British Gas Trading Limited v. Lock [2016] EWCA Civ 983)
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Examples
- Right to pay tax in instalments in relation to exit charge tax read in
"[141] We find that it is possible to apply a conforming interpretation to ss59B and 59D TMA. This can be achieved by reading words into those sections to provide that, at a time before the legislation was actually amended to comply with EU law, those provisions should be read in cases where the taxpayer's right of freedom of establishment would otherwise be infringed, as including an option to defer payment of the exit tax in five equal annual instalments, with the first instalment payable on the normal due date for payment, and at yearly intervals thereafter.
[142] Such a conforming interpretation gives effect to the EU law rights of the Trustees and Redevco, and provides the "best fit" with the EU law requirements. To the extent that we have made any choices, those choices were resolved by the application of the principles that apply to a conforming construction. In particular that the construction should not go further than is necessary to give effect to the EU law rights of the Appellants, should go with the grain of UK law, and recognise that the other provisions of UK law continue to apply." (Trustees of the Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 [2024] UKUT 319 (TCC), Rajah J and Judge Aleksander)
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DIRECT EFFECT
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Disapplication where national law is contrary to directly effective EU law right
"[33] Accordingly, a national court is not required, solely on the basis of EU law, to disapply a provision of its national law which is contrary to a provision of EU law if the latter provision does not have direct effect (judgment of 24 June 2019, Popławski, C‑573/17, EU:C:2019:530, paragraph 68), without prejudice, however, to the possibility, for that court, or for any competent national administrative authority, to disapply, on the basis of domestic law, any provision of national law which is contrary to a provision of EU law that does not have such effect." (Thelen Technopark Berlin GmbH C-261/20)
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"[68] As confirmed by the case-law recalled in paragraphs 64 to 67 above, a national court’s obligation to disapply a provision of its national law which is contrary to a provision of EU law, if it stems from the primacy afforded to the latter provision, is nevertheless dependent on the direct effect of that provision in the dispute pending before that court. Therefore, a national court is not required, solely on the basis of EU law, to disapply a provision of its national law which is contrary to a provision of EU law if the latter provision does not have direct effect." (Poplawski C-573/17)
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- No disapplication to impose an additional obligation on an individual
"[67] It follows from the foregoing that, even a clear, precise and unconditional provision of a directive does not allow a national court to disapply a provision of its national law which conflicts with it, if, in doing so, an additional obligation were to be imposed on an individual (see, to that effect, judgments of 3 May 2005, Berlusconi and Others, C‑387/02, C‑391/02 and C‑403/02, EU:C:2005:270, paragraphs 72 and 73; of 17 July 2008, Arcor and Others, C‑152/07 to C‑154/07, EU:C:2008:426, paragraphs 35 to 44; of 27 February 2014, OSA, C‑351/12, EU:C:2014:110, paragraphs 46 and 47; of 7 August 2018, Smith, C‑122/17, EU:C:2018:631, point 49; and of 22 January 2019, Cresco Investigation, C‑193/17, EU:C:2019:43, paragraph 73)." (Poplawski C-573/17)
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Scope of direct effect: unconditional and sufficiently precise
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“Consequently, the adoption of national measures correctly implementing a directive does not exhaust the effects of the directive. Member states remain bound actually to ensure full application of the directive even after the adoption of those measures. Individuals are therefore entitled to rely before national courts, against the state, on the provisions of a directive which appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise whenever the full application of the directive is not in fact secured, that is to say, not only where the directive has not been implemented or has been implemented incorrectly, but also where the national measures correctly implementing the directive are not being applied in such a way as to achieve the result sought by it.” (Marks & Spencer Plc C-62/00)
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- As far as subject matter is concerned
“[51] It must be borne in mind that, in accordance with settled case-law (see, in particular, Case 8/81 Becker [1982] ECR 53, paragraph 25, Case C-193/91 Mohsche [1993] ECR I-2615, paragraph 17, and Case C-134/99 IGI [2000] ECR I-7717, paragraph 36), wherever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, those provisions may, in the absence of implementing measures adopted within the prescribed period, be relied upon as against any national provision which is incompatible with the directive or in so far as the provisions define rights which individuals are able to assert against the State.” (Ambulanter Pflegedienst Kügler GmbH C-141/00)
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- Exemption is unconditional if it requires the Member State to grant the exemption rather than providing an option
“[49] The first of those conditions is satisfied. The content of point (i) of Article 132(1) of the VAT Directive is unconditional, since it does not provide the Member States with an option, but requires each Member State to grant the exemption laid down by that provision.” (MDDP C-319/12)
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- Option for Member State to lay down additional conditions does not render provision conditional
“[52] First, although Article 13(A)(1) of the Sixth Directive provides that the Member States are to apply the exemptions prescribed by that provision ‘under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse’, a Member State may not rely, as against a taxpayer who is able to show that his tax position actually falls within one of the categories of exemption laid down in the Sixth Directive, upon its failure to adopt the very provisions which are intended to facilitate the application of that exemption (see, in relation to Article 13(B) of the Sixth Directive, , cited above, paragraph 33).
[53] Second, Article 13(A)(1)(g) of the Sixth Directive indicates in a sufficiently precise and unconditional manner the activities to which the exemption applies.
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[59] This conclusion cannot be affected by the possibility under Article 13(A)(2) of the Sixth Directive of making the grant of the exemptions provided for in Article 13(A)(1) subject to one or more conditions.
[60] That limitation on the rule excluding liability to tax is purely contingent in nature and a Member State which has omitted to adopt the measures necessary for that purpose cannot rely on its own omission in order to refuse a taxpayer entitlement to an exemption which he may legitimately claim under the Sixth Directive." (Ambulanter Pflegedienst Kügler GmbH C-141/00)
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- Can rely on direct effect to overcome unlawful conditions imposed by Member State
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“[60] The fact that that provision confirms the existence of a discretion for Member States is not such as to call that interpretation into question if, according to objective evidence, the supply at issue meets the criteria for that exemption (see, by analogy, Case C-45/01 [2003] ECR I-12911, paragraph 81).
[61] Consequently, the fact that Article 13B(d)(6) of the Sixth Directive allows Member States a discretion, indicating that they are responsible for defining special investment funds, does not prevent the persons concerned from relying directly on that provision (see, by analogy, , paragraph 81), where a Member State exercising that discretion has adopted national measures which are incompatible with that directive (see, to that effect, , paragraphs 36 and 37).
[62] The answer to the fourth question must, therefore, be that Article 13B(d)(6) of the Sixth Directive has direct effect, in that it can be relied on by a taxable person before a national court in order to challenge the application of national legislation alleged to be incompatible with that provision.” (JP Morgan Fleming Claverhouse Investment Trust plc C-363/05)
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“[34] As regards more specifically Article 13B of the Sixth Directive, it is apparent from the case-law that, whilst that provision undoubtedly confers upon the Member States a discretion as regards laying down the conditions for the application of certain of the exemptions it provides for, a Member State may not rely, as against a taxpayer who is able to show that his tax position actually falls within one of the categories of exemption laid down in the directive, upon its failure to adopt the very provisions which are intended to facilitate the application of that exemption (, cited above, paragraph 33).
[35] It must be added that the fact that Article 13B(f) of the Sixth Directive confirms the discretion which the Member States have by specifying that they have the power to lay down the conditions and limitations to which the exemption for games of chance and gambling is subject, is not such as to call that interpretation into question. Since those games are, as a rule, exempt from VAT, any operator of such games can directly rely on that exemption provided that the Member State concerned has waived the power expressly conferred on it by Article 13B(f) of the Sixth Directive or has failed to exercise that power.
[36] It is important to note, moreover, that the principle which applies where a Member State has not exercised the powers conferred on it by Article 13B(f) of the Sixth Directive must apply where, in exercising that power, a Member State has adopted national provisions which are not compatible with the directive.
[37] It follows that, as the Advocate General pointed out in point 72 of her Opinion, where, as in the cases in the main proceedings, the conditions or limitations which a Member State imposes on the exemption from VAT for games of chance or gambling are contrary to the principle of fiscal neutrality, that Member State cannot rely on such conditions or limitations to refuse an operator of such games the exemption which he may legitimately claim under the Sixth Directive.
[38] Accordingly, the answer to the third question in Case C-453/02 and the second question in Case C-462/02 must be that Article 13B(f) of the Sixth Directive has direct effect in the sense that it can be relied on by an operator of games of chance or gaming machines before national courts to prevent the application of rules of national law which are inconsistent with that provision.” (Linneweber C-453/02)
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- Provision not unconditional where it only applies to 'certain' circumstances, to be decided by Member State
“[34] To interpret Article 132(1)(m) of the VAT Directive as meaning that, notwithstanding the use of the word ‘certain’ to describe the supplies constituting the transaction to be exempted, Member States are obliged to exempt ‘all’ services closely linked to sport or physical education would be liable to extend the material scope of the exemption beyond that word, contrary to the Court’s case-law stating that the terms used to specify the exemptions in Article 132(1) of that directive are to be interpreted strictly (see, by analogy, judgment of 15 February 2017, British Film Institute, C‑592/15, EU:C:2017:117, paragraph 17 and the case-law cited).
[35] It is all the more appropriate to give that literal interpretation to Article 132(1)(m) of the VAT Directive in view of the fact that, out of the 17 transactions exempted under points (a) to (q) of Article 132(1) of the VAT Directive, it is only those described in points (m) and (n) of that paragraph that apply to only some of the services referred to, none of the other points in the paragraph using the term ‘certain’ or any similar word. Therefore, unless the wording of the other points is to be disregarded, that term cannot be interpreted as a simple reference to the conditions for the application of the exemption which derive from the wording of Article 132(1)(m) and (n) of that directive.
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[38] A consistent interpretation of those two provisions is all the more warranted given that the supply of services linked to sport or physical education and the supply of cultural services, to which the exemptions under points (m) and (n) of Article 132(1) of the VAT Directive respectively apply, are both public-interest entertainment and leisure activities, which distinguishes them from the public-interest activities covered by the 15 other exemptions under Article 132(1) of that directive.
[39] That interpretation of Article 132(1)(m) of the VAT Directive is also consistent with the for that provision. In the original proposal for the Sixth Directive, the European Commission had suggested a global VAT exemption for transactions directly linked to the amateur practice of sport or physical education. However, by introducing the expression ‘certain services closely linked to sport or physical education’ into Article 13A(1)(m) of the Sixth Directive, to which Article 132(1)(m) of the VAT Directive corresponds, the EU legislature gave Member States a margin of discretion to specify the material content of that exemption.” (Golfclub Schloss Igling eV C-488/18 – decided on 10 December 2020, therefore, before IP Completion Day and binding – EUWA 2018, s.6))
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GENERAL PRINCIPLES
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Fiscal neutrality
- Fiscal neutrality cannot extend the scope of an exemption
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"News Corp’s case was that in view of the FTT’s finding that the digital editions are "fundamentally the same or very similar" to the printed editions from the point of view of the consumer (para 153), it would distort the market and breach fiscal neutrality for the digital editions to be standard-rated whilst the printed editions are zero-rated. As HMRC pointed out, however, this assumes that News Corp has already established what is necessary for it to succeed on the interpretation issue. If so, News Corp does not need to rely on the principle of fiscal neutrality. If not, the principle does not assist them as it is well established that it cannot be relied upon to extend the scope of an exemption - see, for example, Finanzamt Frankfurt am Main v-Hochst v Deutsche Bank AG [2012] STC 1951 (at para 45)." (News Corp UK & Ireland Ltd v. HMRC [2023] UKSC 7)
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Principle of effectiveness​
- Effectiveness not breached because rule makes claim difficult in a particular case
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"[70]...But if a particular procedural rule does not, of itself, make all or most claims excessively difficult, the fact that it does so in a particular case because of the difficulties encountered by a particular claimant does not mean that the tribunal will infringe the principle by failing to waive an otherwise proper rule." (HMRC v. NHS Lothian Health Board [2022] UKSC 28)
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