The
European Court of Justice was ruling on a case brought by UK
retailer Marks & Spencer (MKS.L: Quote,
Profile,
Research),
which had argued it was entitled to a full refund of wrongly
paid value-added tax on sales of its chocolate teacakes.
The
court said an EU state can refuse to reimburse wrongly paid
VAT on the basis of "unjust enrichment" -- but only
if fiscal neutrality and equal treatment are observed.
The
sums involved for the company are tiny but the principle could
make it easier for people to claim refunds, experts said.
When
VAT was introduced in Britain in 1973, the store's
"teacakes" were classified as biscuits and therefore
subject to the standard sales tax rate. Cakes are zero rated.
In
1994, Britain's customs authority admitted the teacakes should
not be subject to VAT and the company claimed a 3.5 million
pound ($6.9 million) refund.
Customs
paid only 88,440 pounds to the company, saying most of the VAT
burden had been passed on to customers and that paying the
refund in full would amount to "unjust enrichment".
Britain's
House of Lords will decide whether in light of the EU court
ruling Marks & Spencer can have a full refund.
The
British parliament's upper chamber would have to grant the
refund if it accepts that other retailers in a similar
position have already won refunds.
Tax
experts said the ruling ended a situation whereby the
government could claim unjust enrichment for not refunding
wrongly paid VAT but a taxpayer could not. "The court is
setting aside some of the unjust enrichment argument put
forward by a member state," said Chas Roy-Chowdhury of
the Association of Chartered Certified Accountants.
"It
makes it less of a one-way street and much more of an evenly
handed approach to incorrectly applied VAT as before the odds
were stacked against the taxpayer," Roy-Chowdhury said.
So
