VAT appeals, FTT jurisdiction and Reemtsma claims

The FTT has held that whilst, in principle, it had jurisdiction to hear an appeal against refusal by HMRC to make a refund of VAT under the pre-Brexit Eighth Directive scheme, there was no possibility that such a claim would be successful where it was clear that the relevant supply should have been zero-rated: Metatron v HMRC [2024] UKFTT 115. As such, the claims in this case were struck out.

In addition, the FTT held that it did not have jurisdiction to consider the taxpayer’s Reemtsma claim as such a claim must be brought in the County Court. The question whether such a claim might still lie (in the County Court) post-Brexit was a complex issue that the FTT did not need to address.

Background

The appeals concerned VAT refund claims in respect of goods purchased through eBay from UK suppliers and dispatched from the UK to Slovenia during 2019 and 2020, when the UK was an EU member state. The Tribunal found that the invoices, despite incomplete information, related to supplies dispatched from the UK to Slovenia. HMRC rejected the refund claims, advising Metatron to request VAT refunds directly from the suppliers. Metatron's subsequent appeals to the Tribunal were based on the premise that the VAT charged should have been zero-rated as an intra-community dispatch of goods. HMRC applied to strike out the appeal, arguing that the Tribunal lacked jurisdiction or that the appeals had no reasonable prospect of success.

HMRC also offered to consider the refund claims made prior to 31 December 2020 under "Reemtsma" grounds, which allows for direct recovery from tax authorities where it is virtually impossible or excessively difficult to obtain recovery direct from suppliers. However, HMRC refused to consider a Reemtsma claim in respect of claims made after 31 December 2020, on the basis that, post-Brexit, there was no basis for such a claim. A Reemtsma claim was one based on general principles of EU law and post-2020 such a claim was precluded by the EU (Withdrawal) Act 2018 Schedule 1 para 3, even where it related to supplies made pre-Brexit.

Decision of the FTT

An appeal lies to the FTT in respect of VAT in relation to those matters covered by VATA 1994 s.83. These include “any decision of the Commissioners to refuse to make a repayment under a scheme under section 39”. Section 39, together with supplemental provisions in the VAT Regulations and the terms of Notice 742, set out the Eighth Directive refund scheme. This covers payments of UK VAT by EU traders which would have been input VAT of the claimant if the claimant were a taxable person in the UK. However, HMRC argued that the tribunal in this case did not have jurisdiction since the claim made by the appellant was not a claim made under section 39 at all. Accordingly, the decision to refuse it could not be the refusal of such a claim made and there can be no jurisdiction to appeal under section 83.

The FTT rejected this argument. An appealable decision under s.83 covered any decision to refuse to make a refund under the scheme, including a decision that, in some way, the claim is not one that is compliant with the scheme.

However, on the question whether the appeal should be struck out as there was no reasonable prospect of success, the FTT agreed with HMRC. It was plain from the terms of the refund scheme that it excluded claims relating to goods which are despatched to an EU country. In this case, it was plain that the claims related to supplies which were transported to another EU member state and should have been zero-rated in the UK. The VAT invoices were therefore raised in error.

The FTT also decided to strike out the claim based on Reemtsma. The Upper Tribunal in Earlsferry had previously held that the appropriate forum for enforcing a taxpayer’s EU law rights under a Reemtsma claim was a claim brought for recovery in the Country Court. As such, the FTT had no jurisdiction to hear the Reemtsma claim.

However, the FTT went on to note that whether a right to bring a Reemtsma claim in the country court still remains is a complex issue. HMRC contended that no such claim could be brought post 31 December 2020, but the FTT noted that many practitioners would disagree and would consider that the principles of effectiveness and neutrality were acknowledged by the UK courts prior to Brexit such that an entitlement remains. That would be a matter for the County Court to determine, however.

Comment

HMRC’s argument that the FTT did not have jurisdiction to hear the appeal since the claims did not fall within the Eighth Directive appear to be an attempt to determine the correctness of the claim and as such inappropriate for a jurisdictional argument.

More interesting would have been the question whether the taxpayer could have brought Reemtsma claims, either pre or post-Brexit. However, the FTT found it unnecessary to consider this “complex issue” as it simply did not have jurisdiction.