England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London. WC2A 2LL
		26/10/2007

Mr Justice Briggs :

1. This is an appeal by JP Commodities Ltd ("JPC") against the decision of the VAT and Duties Tribunal released on 22 November 2006, which dismissed JPC's appeal against the decision of HMRC to deny the application for a zero-rate of VAT made by JPC in relation to two supplies of goods to its customer, Bronteum, a company registered in Gibraltar.
2. The issue raised by this appeal is whether HMRC are entitled to impose, as a condition for the entitlement under Article 28(c) of the Sixth VAT Directive to a zero-rate of VAT on the supply of goods to a trader carrying on business in another Member State, a requirement that the UK trader first obtain and show on its VAT sales invoice its customer's VAT registration number. In the present case, Bronteum was not registered for VAT, and accordingly JPC was unable to, and did not, comply with that condition. Non-compliance caused HMRC's refusal to zero-rate the relevant supplies.
3. The facts are straightforward, and not in dispute. I take them from the Decision of the Tribunal.
4. JPC, which is a VAT registered trader in the UK, made two sales of electronic goods - hand-held games machines and MP3 players - to Bronteum, a company registered in Gibraltar, in December 2005. At Bronteum's request the goods were delivered to an address in Belgium. It is common ground that, because it carried on business in Belgium, Bronteum ought to have been registered for VAT there, but that it was not.
5. As the result of what the Tribunal described as naivety rather than impropriety, JPC thought that Bronteum's Gibraltarian place of incorporation meant that it could zero-rate supplies to Bronteum as exports, failing to appreciate that an entitlement to zero-rating depended upon compliance with the regime for intra-Community supplies of goods as provided for in Article 28. Having bought the relevant goods in the UK, JPC made a claim for a net repayment of input tax in its VAT return for the period 12/05 on the assumption that it could zero-rate its supplies to Bronteum. HMRC's challenge to that assumption led to these proceedings.

Article 28 of the Sixth VAT Directive

6. Prior to December 1991, supplies by a UK trader to a customer outside the UK were zero-rated, regardless whether those supplies were made to customers within or without the territory of the Member States. In the case of supplies to another Member State, the customer had to pay import VAT upon the release of the goods from bond, and could treat the amount payable as VAT on his inputs, which he could then set off against VAT recovered and payable in respect of outputs, or (if his outputs were insufficient) reclaim it.
7. Since the realisation of the internal market within the Community involved the abolition of the internal frontier controls, it was necessary for a new regime to be devised. This was introduced by Council Directive 91/680/EEC as an interim regime, under a preamble which included the following provisions:

"Whereas the completion of the internal market requires the elimination of fiscal frontiers between Member States and to that end the imposition of tax on imports and the remission of tax on exports in trade between Member States be definitively abolished;

whereas, however, the determination of the definitive system that will bring about the objectives of the common system of value added tax on goods and services supplied between Member States requires conditions that cannot be completely brought about by 31 December 1992;

….

whereas, therefore, provision should be made for a transitional phase, beginning on 1 January 1993 and lasting for a limited period, during which provisions intended to facilitate transition to a definitive system for the taxation of trade between Member States, which continues to be the medium-term objective, will be implemented;

whereas, during the transitional period intra-Community transactions carried out by taxable persons other than exempt taxable persons should be taxed in the Member States of destination, at those Member States' rates and under their conditions;"

That transitional regime remained in place until the making of the supplies the subject matter of this appeal.

8. The substance of the new regime is contained in Article 28 of the Sixth Directive. Article 28(a) imposes VAT on the person acquiring the goods or services. Article 28(b) contains provisions identifying the place where the goods or services are deemed to be acquired. Article 28(c) creates a corresponding exemption to VAT for the supplier, an exemption to which effect is given in the United Kingdom by zero-rating.
9. Article 28(a) contains the following material provisions under the heading "Scope":

'1. The following shall also be subject to value added tax:

(a) intra-Community acquisitions of goods for consideration within the territory of the country by a taxable Person acting as such ... where the vendor is a taxable Person acting as such ...

'3. "Intra-Community Acquisition of Goods" shall mean acquisition of the right to dispose as owner of moveable tangible property despatched or transported to the Person acquiring the goods by or on behalf of the vendor or the Person acquiring the goods to a Member State other than that from which the goods are despatched or transported."

10. Article 28b, under the heading "Place of transactions" and the sub-heading "A: Place of the intra-Community acquisition of goods " continues as follows:

"1. The place of intra-Community acquisition of goods shall be deemed to be the place where the goods are at the time when the despatch or transport to the person acquiring them ends.

2. Without prejudice to paragraph 1, the place of the intra-Community acquisition of goods referred to in Article 28a(l)(a) shall, however, be deemed to be within the territory of the Member State which issued the value added tax identification number under which the person acquiring the goods made the acquisition, unless the person acquiring the goods establishes that that acquisition has been subject to tax in accordance with paragraph 1."

11. Article 28(b) continues with detailed provisions designed to identify the place of the supply of services of various different kinds. All of them contain references, in a form similar to paragraph 2 which I have quoted above, to the issue of the VAT tax identification number to the acquirer or customer.
12. Article 28(c) contains the provisions the meaning of which lies at the centre of this appeal, under the heading "Exemptions" and the sub-heading "A: Exempt supplies of goods " as follows:

"Without prejudice to other Community provisions and subject to conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse, Member States shall exempt:

(a) supplies of goods ... despatched or transported by or on behalf of the vendor or the person acquiring the goods out of the territory referred to in Article 3 but within the Community, effected for another taxable person or a non-taxable legal person acting as such in a Member State other than that of the departure of the despatch or transport of the goods."

13. Before leaving the Sixth VAT Directive, it is material to note that Article 4 contains in paragraph 1 the following definition of "Taxable person":

"1. 'Taxable person' shall mean any person who

independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity'."

14. It is common ground, on the facts found by the Tribunal, that Bronteum was at the material time a Taxable person within the meaning of Article 4. Whether or not it was also a taxable person within the meaning of Article 28cA(a) is a central issue in this appeal.
15. Article 28(c) is implemented in the United Kingdom by section 30(8) of the Value Added Tax Act 1994, by Regulation 134 of the Value Added Tax Regulations 1995 and by Notice 725 VAT: The Single Market. Nothing turns on section 30(8) of the Act or upon Regulation 134. Notice 725 purports at paragraph 3.1 to make it a condition of zero-rating for the purposes of Article 28(c), having the force of law, that the UK supplier "obtain and show on your VAT sales invoice your customer's VAT registration number including the two-letter country code prefix ..."

It is common ground that the outcome of this appeal depends in part upon the question whether that condition in Notice 725 was validly imposed.

The Tribunal's Decision and the Parties' Submissions on this Appeal

16. Although the written decision of the Tribunal might be interpreted as indicating a general acceptance of all the submissions made by Mr Thomas on behalf of HMRC, it is I think reasonably clear that the principal ground upon which the Tribunal rejected JPC's challenge to Condition 1 was that it was a condition falling within the phrase "Conditions which they shall lay down for the purpose of ensuring ... the prevention of any evasion, avoidance or abuse ..." within Article 28c.
17. For JPC, Mr Timothy Brown submitted that his client was entitled to succeed on this appeal if he could persuade the court to give an affirmative answer to the first, second and either the third or fourth of the following questions:

1. Was Bronteum a taxable person in accordance with Article 28(c)?

2. If so, did Bronteum have a directly enforceable right to zero-rating in relation to these supplies by virtue of the Sixth Directive?

3. Is the requirement imposed by Condition 1 of Notice 725 contrary to the principle of proportionality?

4. Is the requirement imposed by Condition 1 contrary to the principle of effectiveness?

18. That analysis did not directly address what seems to me to be a necessary intermediate question, lying between Mr Brown's numbers 2 and 3, namely whether Condition 1 fell within the range of conditions expressly contemplated by Article 28c, namely "Conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse". Nonetheless, he made no concession on that point, and Mr Thomas fairly acknowledged, correctly in my judgment, that a conclusion favourable to the validity of Condition 1 required it to be shown that it did fall within that formula. Subject therefore to the addition of that intermediate question, Mr Brown's helpful analysis is one which I have adopted in determining this appeal. Mr Thomas's submissions for HMRC will sufficiently appear in the course of that analysis.

1. Was Bronteum a taxable person within the meaning of Article 28(c) at the material time?

19. It might have been thought from HMRC's acknowledgement that Bronteum was a taxable person within the meaning of Article 4 of the Sixth Directive at the material time that this question would admit of a simple affirmative answer, on the basis that nothing in Article 28c uses the phrase "taxable person" with any indication that the definition in Article 4 is not to be applied.
20. Mr Thomas submitted however that the phrase "taxable person" in Article 28c purposively construed in its context, means "taxable person who is registered for VAT". He based this submission in part upon a textual analysis of Article 28 as a whole, and in part on a purposive exegesis of the scheme established by Article 28 which, he said, could only be achieved if that more restrictive definition of taxable person was implied. He sought to persuade me, but without success, that the Manchester VAT Tribunal had in paragraph 41 of its decision in the case of Red Giant Promotions Limited (Man/97/947) accepted a submission to the same effect. I am not persuaded that paragraph 41 of that decision compels that conclusion, and even if it did, it would not be binding on this court.
21. Mr Thomas's textual submission was based upon the instances in Article 28(b), one of which I have quoted above and the rest of which I have summarised, in which the identification of the place of acquisition or place of supply of intra-Community goods and services is made dependent upon the identity of the Member State which issued the acquirer or customer with its VAT identification number. For this machinery to work, said Mr Thomas, the draftsman of the Directive must have assumed that the acquirer or customer would always be VAT registered. He pointed also to a provision in Article 28(c)E3 to a similar, but differently worded, effect.
22. I agree with Mr Thomas that those provisions are indicative of a general assumption on the part of the draftsman of Article 28 that acquirers or customers in relation to intra-Community supplies of goods and services would be registered for VAT. That is a perfectly natural assumption since, as taxable persons within Article 4, they could reasonably be supposed to comply with their legal obligation to register for VAT. There is nothing surprising in finding that the details of the scheme in Article 28 are set out on the assumption that the participants in it will be law-abiding. That assumption is embedded in the omnia praesumuntur rite esse acta principle.
23. The machinery of Article 28 is not, however, unworkable in the case of a taxable person who is not registered for VAT. In each case where reference to the Member State which issued the person's VAT identification number triggers a deeming provision, there is to be found a default provision which does not so depend. For example, paragraph 2 of Article 28bA operates without prejudice to paragraph 1, which identifies the place of the acquisition as being that where the goods are at the time when despatch or transport to the person acquiring them ends. Each of the other examples in Article 28b are by way of derogation from other provisions in the Sixth Directive. While the obligation in paragraph 3 of Article 2ScE, first indent, may only arise where an acquisition is effected by a person who is registered, that does not make the rest of Article 28c unworkable in relation to unregistered taxable persons within the meaning of Article 4.
24. Mr Thomas's purposive submission, based upon the objective of Article 28 ran as follows. Exemption or zero-rating for the supplier in an intra-Community acquisition was, as an objective, the quid pro quo for the accounting for acquisition tax by the customer in the Member State where the place of acquisition was to be found, and this in turn depended in practice upon the customer being VAT registered. In that context, he derived some support from the lucid analysis of the rationale of Article 28 in paragraphs 23 to 32 of the Opinion of Advocate General Kokott in Teleos plc v Commissioners of Customs & Excise [2007] EUECJ C-409/04, a case in which the judgment of the Court was broadly consistent with the thrust of that Opinion.
25. Accepting in full, as I do, Advocate General Kokott's analysis of the rationale behind the transitional scheme created by Article 28, I am not persuaded that it affords a sufficient basis for adopting what otherwise appears to me to be a most unusual, strained and counter-intuitive construction of "taxable person" advanced by Mr Thomas. First, it would, in my view, be quite extraordinary to conclude that, where "taxable person" is used in Article 28a as the trigger for a liability to pay acquisition tax in the event of an intra-Community acquisition, that liability depended upon the person complying with his obligation to register for VAT. That is clearly contrary to the general provision in Article 4 and, as implemented in the UK, contrary to section 3(1) of, and paragraph 1 of the Third Schedule to, the VAT Act. I have no reason to suppose that Belgian VAT legislation implements the Directive in any different manner.
26. Mr Thomas sought to evade that difficulty by submitting that, even if all the other conditions for an intra-Community acquisition were satisfied, an acquisition by an Article 4 taxable person who was not registered for VAT would not be an intra-Community acquisition at all within the meaning of Article 28al(a). But that submission falls foul of Article 28a3 (quoted above) which defines "intra-Community acquisition of goods" without reference to the question whether the person acquiring the goods is a taxable person or not, let alone whether he is registered for VAT. In my judgment, an acquisition tax liability on the acquirer, and a tax exemption for the supplier, are both intended to apply wherever there is an intra-Community acquisition as defined, provided that, as both Articles 28a and c require, both parties are taxable persons within the meaning of Article 4. The fact that one or the other or both may, in particular cases, seek to evade, avoid or abuse that legal framework by failing to register for VAT is, as a matter of construction of the framework which both imposes acquisition tax and creates the relevant exemption, irrelevant. It is also irrelevant for that purpose that the acquirer or customer may be suggested to hinder the "correct and straightforward application of the exemptions" within the meaning of Article 28c by failing to register for VAT in the Member State where the acquisition occurs. Those considerations arise in my judgment, if at all, when considering the legitimacy of conditions imposed pursuant to the opening words of Article 28c, not in relation to the question whether the acquirer or customer is a taxable person.
27. It follows that I answer the first question proposed by Mr Brown in the affirmative. Bronteum was a "taxable person" within the meaning of Article 28c at the material time.

2. Did JPC have a directly effective right to zero-rating?

28. Mr Thomas did not challenge the proposition that, if JPC otherwise qualified for an exemption under Article 28c, it qualified for zero-rating in the UK, the method whereby, in this jurisdiction, that exemption is conferred. As he correctly submitted, however, the right to an exemption depends, as a clear consequence of the language of Article 28c upon the supplier satisfying any legitimate conditions imposed by Member States for the purposes there set out. It follows that Mr Brown's second question adds nothing to the analysis which flows from those subsequent to it.

3. Is Condition 1 in Notice 725 within the category of conditions which Member States may "lay down for the purpose of ensuring the correct and straightforward application of the exemptions provided for below and preventing any evasion, avoidance or abuse"?

29. In my judgment Condition 1 clearly does tend to ensure the correct and straightforward application of the scheme constituted by Article 28 as a whole. It does so by making sure that the exemption or zero-rating in the supplier's Member State only occurs where the customer is not merely liable for acquisition tax as a taxable person, but also, by virtue of being registered, is in a position properly to account to the tax authority of his Member State for that tax, and subsequently to collect and pay VAT on any relevant on-sale of the goods in question. Furthermore, ensuring that the customer is VAT registered will facilitate the correct and straightforward application of the deeming provision in Article 28b42.
30. Strictly, the "correct and straightforward application of the exemptions provided for below ..." does not depend upon ensuring that the customer is VAT registered, if the supplier's right to an exemption depends only upon the customer being a taxable person, save perhaps in marginal cases where the modest size of the supply gives rise to real doubt whether the customer's business is of a size sufficient to attract VAT liability. The question therefore depends upon whether the phrase "correct and straightforward application of the exemptions" can be given a wider than strictly literal meaning, so as to extend to other aspects of the application of the scheme of which the exemption forms part, such as the accounting for acquisition tax by the customer.
31. In my judgment, a purposive construction of Article 28a does permit that broader interpretation of the Directive, principally because of what Advocate General Kokott describes as "the interconnectedness of the intra-Community acquisition and the exemption of the intra-Community supply" in the passage in her Opinion in Teleos to which I have referred above. It is in my judgment no abuse of the language of a Directive to suggest that the correct and straightforward application of the supplier's exemption is ensured by a condition which tends to maximise the prospect that the interconnected acquisition receives the appropriate VAT treatment in the customer's Member State. Put the other way round, conferring the exemption in circumstances where, in the absence of Condition 1, the customer may fail to comply with the connected obligation to account for acquisition tax, or even to charge and pay VAT on any down-stream supply of its own, leads to zero-rating which, when compared with the purpose intended to be achieved by the scheme, may fairly be described as incorrect.
32. The appropriateness of Condition 1 is even clearer when it is asked whether it tends to prevent evasion, avoidance and abuse. That phrase is not specifically linked to the exemption, as opposed to the Article 28 scheme as a whole, and in my judgment may fairly be claimed to apply wherever a particular condition tends to prevent evasion, avoidance or abuse of the VAT obligations of either of the participants in a postulated intra-Community transaction.
33. In this context Mr Thomas did not rely on the prevention of abuse, since, whatever its general meaning in ordinary language, the word "abuse" has a technical meaning in the VAT context not applicable in the present circumstances. Nor is it established affirmatively that Bronteum, in failing to register for VAT in Belgium was committing VAT evasion, in the sense of deliberately failing to comply with its obligations. But if not evading them, it seems to me that Bronteum must in all probability have been avoiding them, and in any event, Condition 1 is to be addressed by reference to what it may be supposed generally to achieve, rather than to its success or failure in preventing evasion or avoidance in any particular transaction.
34. In my judgment, Condition 1 plainly does tend to prevent evasion or avoidance of the VAT obligations of participants in an intra-Community transaction under Article 28. It does so, not by ensuring that the VAT chargeable upon the supplier in a case where zero-rating is disallowed is then paid or accounted for by HMRC to its Belgian or other EU counterpart which may ultimately be deprived of what the customer should have paid, but rather by encouraging UK suppliers to ensure, before making supplies to taxable persons in other Member States, that they are VAT registered. Being forced otherwise to pay VAT at the standard rate upon a supply where they have failed to charge it to their off-shore customer is likely to be a powerful disincentive to any UK trader properly informed as to the VAT consequences of selling goods to customers carrying on business elsewhere in the EU. The reason why Condition 1 failed to achieve that objective in this case was because, as the Tribunal found, those responsible for the management of JPC naively assumed that the supply constituted an export because of Bronteum's Gibraltarian place of registration.
35. I therefore conclude that Condition 1 in Notice 725 prima facie qualifies as a legitimate condition under both limbs of the category of conditions referred to in the opening words of Article 28c.

4. Is Condition 1 disproportionate?

36. For an understanding in this context of the European law doctrine of proportionality I was referred by both counsel to the following paragraphs, again in Teleos, but on this occasion in the Judgment of the Court:

"45. As is clear from the first part of the sentence in Article 28c(A) of the Sixth Directive, it is for the Member States to lay down the conditions for the application of the exemption of intra-Community supplies of goods. It is important to note, however, that when they exercise their powers, Member States must comply with the general principles of law which form part of the Community legal order, which include, in particular, the principles of legal certainty and proportionality ...

52. Secondly, as regards the principle of proportionality, it must be recalled that the Court held, in paragraph 46 of its judgment in Molenheide and Others, that, in accordance with that principle, the Member States must employ means which, whilst enabling them effectively to attain the objectives pursued by their domestic laws, cause the least possible detriment to the objectives and principles laid down by the relevant Community legislation.

58. Admittedly, the objective of preventing tax evasion sometimes justifies stringent requirements as regards suppliers' obligations. However, any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, must be compatible with the principle of proportionality. Furthermore, rather than preventing tax evasion, a regime imposing the entire responsibility for the payment of VAT on suppliers, regardless of whether or not they were involved in the fraud, does not necessarily safeguard the harmonised VAT system from evasion and abuse by purchasers. The latter, were they exempted from all responsibility, could, in effect, be encouraged not to despatch or not to transport the goods out of the Member State of supply and not declare the goods for VAT purposes in the envisaged Member States of destination."

37. In the Teleos case, the Court applied the proportionality principle so as to prohibit the tax authorities of a Member State from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for VAT on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion.
38. In the present case, as in Teleos, the proportionality issue arises not between the domestic law objectives of one Member State and the objectives of the Community legislation, but in two differing expressly stated objectives in the Community legislation itself. The first is that suppliers of goods in intra-Community transactions should have exemption from VAT. The second is, however, that this should not occur in circumstances where evasion or avoidance by the customer of its VAT obligations leads the VAT treatment of the interconnected acquisition to be frustrated.
39. In my judgment, Condition 1 comes nowhere near offending the principle of proportionality. By contrast with the factual situation in Teleos, a supplier who zero-rates a supply of goods which is to be delivered to a customer in another Member State can hardly be said to have taken every reasonable measure in his power to ensure that the transaction in which he was participating did not lead to evasion, if he fails to ascertain whether his customer is registered for VAT. Zero-rating is only permitted where the supply is to a taxable person acting as such, and therefore excludes, for example, supplies to a person who happens to be a trader, but where he is acquiring the goods as a consumer. In such cases zero-rating would not be permitted. On the facts of the present case, the supplies in question were plainly being made to Belgium, to the order of a trader acting as such and not as consumer.
40. Since it is only if the trader is a taxable person that the supplier may zero-rate his supply, it follows inevitably that a properly informed supplier, taking every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in evasion or avoidance, would take steps to satisfy himself that his customer was VAT registered. Condition 1 requires no more, nor less, than that. It is, therefore, not disproportionate.

5. Does Condition 1 offend the principle of effectiveness?

41. For the definition of this principle in European law I was referred to paragraph 34 of the Judgment of the Court of Justice in Marks and Spencer plc v Customs & Excise Commissioners (Case C-62/00) [2002] STC 1026 which, under the heading "The principle of effectiveness": continued:

"34. It should be recalled at the outset that in the absence of Community rules on the repayment of national charges wrongly levied it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, first, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness)

…."

42. If that is the full extent of the principle, it seems to me fanciful to suggest that by requiring the supplier to state the customer's VAT registration number in his VAT sales invoice imposes an obligation which renders the exercise by the supplier of his right to zero-rating impossible or excessively difficult. When it is borne in mind that it is only supplies to EU resident taxable persons acting as such which qualify for zero-rating, it seems to me a small thing for the supplier to have to obtain the customer's VAT number. If the customer ought to be, but is not, VAT registered, then on the construction of Article 28c which I have preferred, it is true that a technical right to zero-rating may in theory be rendered impossible by the existence of the Condition. But a purposive interpretation of the scheme in which that right forms only a part makes it clear in my judgment that it is no part of the objective behind the conferring of that right to facilitate its exercise in circumstances where the corresponding VAT obligations of the customer are, because he is not VAT registered, likely to be flouted.
43. I was for some time troubled by a quite separate potential issue as to effectiveness. It will be recalled that in the preamble of the Directive which introduced the Article 28 scheme it was declared that during the transitional period regulated by Article 28, intra-Community transactions carried out by taxable persons should be taxed in the Member States of destination, at those Member States' rates and under their conditions. The effect of Condition 1 is, in the case of an intra-Community transaction where the customer is, although a taxable person, not registered for VAT, to impose a full VAT charge on the supply in favour of the tax authority in the supplier's Member State rather than in the Member State of destination. In the present case, tax which ought in due course to swell the coffers of the Belgian tax authorities, is paid to, or (on the present facts, not reclaimed from) the UK tax authorities which, perhaps unsurprisingly, make no corresponding transfer to Belgium.
44. Taking a more general view of the concept of effectiveness, it might be questionable whether Condition 1 achieves, rather than frustrates, an expressly stated objective of the scheme.
45. I have, however, been persuaded that my concern is misplaced, for two reasons. The first is that the principle of effectiveness, as explained in the Marks and Spencer case, simply does not operate in that way. The second is, as already mentioned, that the purpose of Condition 1 is not adventitiously to swell the coffers of the UK Customs, but to ensure that UK suppliers carry out their qualifying intra-Community transactions with properly VAT registered customers. The effectiveness of the Condition lies in its deterrent effect, rather than its operation, where an incautious supplier fails to apprise himself of the relevant rules.
46. Mr Thomas made the additional submission that in a case where the customer fails to register for VAT it is better that VAT is collected by the wrong Member State than that the transaction escapes the taxation net altogether. That may or may not be so, but in any event I prefer the other two reasons why I have concluded that the effectiveness principle is not engaged on the present facts.

Conclusion

47. Having answered Mr Brown's four questions, and the additional intermediate question, in the manner which I have set out above, it follows that this appeal must be, and is, dismissed.