First-tier Tribunal (Tax)

[2010] UKFTT 257 (TC)

TC00551

Appeal number: MAN/09/0050

VAT – claim for repayment of input VAT by Third Country Trader – Eighth Directive – omission of certificate of status – reapplication submitted after final date – later dated certificate – whether sufficient for valid claim – no, as time limit strict – invoices in Euros not sufficient – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                                MEGAINK S.R.O                               Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: JOHN CLARK (TRIBUNAL JUDGE)                                                                                SHEILA WONG CHONG FRICS              

Sitting in public at 45 Bedford Square, London WC1 on 27 April 2010

The Appellant did not appear and was not represented

Alexander Ruck Keene of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Megaink s.r.o. (“Megaink”) appeals against a decision by the Respondents (“HMRC”) to refuse to refund an amount of VAT in the sum of £3,417.75 claimed by Megaink as being repayable under the provisions of Directive EC 79/1072/EC (“the Eighth Directive”).

2.       In correspondence with the Tribunal, Megaink’s representative indicated that it would not be present or represented at the hearing, and requested that the points raised in correspondence should be taken into account by the Tribunal in arriving at its decision. We confirm that we have approached the appeal on this basis.

The facts

3.       HMRC provided a bundle of documents, which included a witness statement made by Stephen Catterson, an officer in HMRC’s Overseas Repayment Unit (“ORU”). No oral evidence was given. On the basis of the evidence provided, we find the following facts.

4.       Megaink is a business established in the Czech Republic. It is registered for VAT in the Czech Republic, and has no business establishment in the United Kingdom.

5.       On 22 June 2006, Megaink signed a Power of Attorney appointing ITS Holding s.r.o. (“ITS”) to act on its behalf in connection with any claim it made to HMRC (referred to under their former title of the Commissioners of Customs and Excise).

6.       On 23 June 2006, ITS submitted an application for repayment of VAT incurred by Megaink for the period 1 January 2005 to 31 December 2005. The total amount claimed was entered as £3,665.35, relating to six invoices, three dated in 2005 and three dated in 2006. Original copies of the invoices were submitted with the application. The invoices dated 2005 were submitted in Euros.

7.       HMRC received the application (which was on the correct VAT 65A form) on 27 June 2006, ie within the time limit for a claim relating to the period 1 January to 31 December 2005. HMRC examined the application under its “face vet” scheme, which was a scheme introduced in 2005 to carry out initial checks of the completeness of claims for the repayment of VAT as soon as claims were received. The purpose of this scheme was to enable HMRC to notify applicants immediately if an incomplete claim had been received, the overall objective being to reduce the average time for refund to claimants. Having examined Megaink’s application at face vet stage, HMRC rejected it on the basis that it was incomplete. The reason was that, despite the list of enclosures set out in the covering letter, the application was incomplete as Megaink had failed to submit a Certificate of Status. In addition, HMRC noted in their records that the claimed amounts for 2005 should also be rejected on the basis that the invoices did not show the VAT amount in sterling; we consider this in the final section of this decision.

8.       HMRC’s letter rejecting the application and returning it and the supporting documents to ITS was dated 3 July 2006. This date was beyond the time limit for a refund claim in respect of the year to 31 December 2005.

9.       By a letter to HMRC dated 16 September 2006, ITS supplied a Certificate of Status carrying the date 18 September 2006). ITS acknowledged that it had been omitted in error.  Under a covering letter dated 30 October 2006, ITS re-submitted the original application that had been rejected by HMRC.

10.    HMRC treated the re-submission of the application as a claim in respect of the three invoices dated 2006, the deadline for claims in respect of the previous year having passed and the late provision of the Certificate of Status being unable to remedy the deficiency in the claim originally submitted on 23 June 2006.  By their letter of 26 March 2007, HMRC therefore repaid the sum of £247.60.  By an addendum to that letter, HMRC also indicated that a further defect with the claim based upon the 2005 invoices was that those invoices were in Euros when they were required to be in sterling.

11.    ITS wrote to HMRC on 14 April 2007 seeking a reconsideration of this decision. HMRC reconsidered the matter but upheld their original decision in their letter dated 19 October 2007. On behalf of Megaink, ITS wrote again to HMRC on 6 November 2007 seeking a further reconsideration; HMRC upheld their decision by their letter dated 9 April 2008.

12.    On behalf of Megaink, ITS gave notice of appeal on 14 January 2009. Although the appeal was brought outside the statutory time limit, HMRC raised no objection and Megaink’s request for an extension of time (based on the lack of knowledge of the address to which notice should be sent) was granted.

Arguments for Megaink

13.    ITS argued that there had been a mistake on HMRC’s part. The refund request had been sent to them on 23 June 2006. On 16 September 2006 ITS had sent HMRC a Certificate of Status of Taxable Person without having been requested to do so, as ITS had failed to include this certificate with the request in June 2006. On 4 April 2007, ITS had obtained HMRC’s response to the request sent on Megaink’s behalf; however, only three refunds had been made out of the six requested.

14.    ITS stated that the reasoning given by HMRC in correspondence was erroneous. HMRC had stated that the accounts [invoices] numbered 2 to 4 were sent after 30 June 2006; this was a mistake, as all the necessary documents, including six accounts had been attached to the request. The only other item, the Certificate of Status, had been sent additionally as already mentioned. ITS argued that the refund for 2005 amounting to £3,665.35 should be recognised.

Arguments for HMRC

15.    Mr Ruck Keene provided a detailed skeleton argument setting out the legal framework, the relevant HMRC Notice 723 which applied at the material time, an explanation of the face vet scheme and an analysis of the applicable case law as determined by the European Court of Justice (“ECJ”) and the domestic UK law as determined by the VAT and Duties Tribunal and its successor body the First-tier Tribunal (Tax Chamber). For the sake of completeness, he also drew attention to the new procedures introduced affecting the handling of claims for VAT repayment made by traders within the European Union from 1 January 2010 onwards.

16.    He relied in particular on three “domestic” cases. In Nova Stamps v Commissioners of Customs & Excise (1997) VAT Decision 15304, it had been held that the provisions of Article 7.1 of the Eighth Directive are mandatory and do not provide for any discretion to extend the time limit, even in special circumstances. The Tribunal had also held that the provisions of Regulation 179(1) of the Value Added Tax Regulations 1995, SI 1995/2518 (“the 1995 Regulations”) were similarly mandatory and did not provide for any discretion, and that even if the general discretion granted to HMRC by paragraph 1(1) of Schedule 11 to the VATA 1994 gave them the power to extend the time limits (a point which was not fully argued before the Tribunal) a refusal to exercise such a discretion was not a matter which could be reviewed by the Tribunal.

17.    In Arm Inc v Revenue and Customs Commissioners (2007) VAT Decision 20238 the Tribunal had considered when a claim under the Thirteenth Directive could be said to have been made. Its conclusion was that this was when the application form and the relevant supporting documents were dispatched, as long as this was done in such a manner as with reasonable certainty would ensure prompt delivery. However, on the facts of the case, the Tribunal had concluded that the claim had not been made within time because the necessary certificate of status was not provided at the time when the claim was despatched, such that:

“. . . it did not make a satisfactory claim on time or at all . . .”

18.    In Areva T&D Protection and Others v Revenue and Customs Commissioners [2010] UKFTT 134, TC00443, the Tribunal had considered a number of matters concerning the Eighth and Thirteenth Directives. Reading Article 7 of the Eighth Directive, and in particular Article 7.4, without any attempt to construe it in a way that prevented discrimination against non-domestic traders, the Tribunal was satisfied that the claim or application under the Eighth Directive was made when and only when all the documents required for examination of the application had been submitted to HMRC. In this connection, the Tribunal took into account the reasoning in Arm Inc.

19.    Mr Ruck Keen argued that in the present case we should adopt the approach to the legal framework and the face vet scheme taken in Areva; although not technically binding on us, he submitted that the decision was highly persuasive as the parties were legally represented and the hearing, lasting two days, was expressly convened to consider matters on a “test case” basis as between HMRC and one of the largest agents for applicants under both the Eighth and Thirteenth Directives.

20.    It was common ground that Megaink (through ITS) did not send a Certificate of Status with its original application.  For the reasons outlined in Areva, this alone meant that the application was invalid.  Furthermore, the fact that the invoices dated 2005 were in Euros gave a further basis upon which the application (in relation to those invoices) was invalid.

21.    HMRC had then been provided with a Certificate of Status dated 18 September 2006 and a re-submitted application by letter dated 30 October 2006.   He argued that they had then acted entirely appropriately by treating this letter and application as a fresh (early) application in relation to the period 1 January 2006 to 31 December 2006, and by repaying those invoices dated 2006.

22.    He submitted that Megaink’s appeal was without merit and should be dismissed.

Discussion and conclusions

23.    In considering this appeal, we should point out that we were not provided with a copy of HMRC’s letter of 3 July 2006 refusing the application and returning the accompanying documentation. Copies of the invoices were not provided, as HMRC’s practice was not to keep the invoices or copies.

24.    As Mr Ruck Keen pointed out, the issues raised by this appeal were considered in detail in Areva. For this reason, we are not setting out the legislation or citing at length the relevant cases. Mr Ruck Keen submitted that we should adopt the approach to the legal framework and the face vet scheme taken in Areva; in the light of the detailed analysis carried out by the Tribunal in that case, we accept his submission and follow that approach.

25.    Areva and Arm Inc confirm that unless the requirements are properly fulfilled at the time when the application for a refund is made, the application does not amount to a valid claim. Were the requirements fulfilled in Megaink’s case?

26.    At the point when Megaink’s application dated 23 June 2006 was subjected to the initial brief examination by the ORU under the face vet scheme, it was found to be deficient in two respects. The first was that, despite the item in the list of enclosures set out in ITS’ covering letter specifying “1 x Certificate of Status of Taxable Person”, this was not enclosed with the application.

27.    The second respect was one which may not have been referred to by HMRC in correspondence until a much later stage. This was that the invoices relating to the 2005 period were in Euros. Articles 226 and 230 of the EU Council Directive 2006/112/EC of 28 November 2006 (“the VAT Directive”) provide:

“Article 226

Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:

. . .

            (10) the VAT amount payable, except where a special      arrangement is applied under which, in accordance with this     Directive, such a detail is excluded;

            . . .

Article 230

The amounts which appear on the invoice may be expressed in any currency, provided that the amount of VAT payable is expressed in the national currency of the Member State in which the supply of goods or services takes place, using the conversion mechanism laid down in Article 91.”

28.    Although we have not seen the original invoices, it is clear from the annotations made by HMRC on section 10 of Megaink’s VAT 65A application form dated 22 June 2006 that the amounts had been invoiced in Euros and not in sterling. We saw no record of the basis of the conversion of the VAT refund amounts from Euros to sterling, even though the amounts shown in the form VAT 65A were in sterling rather than in Euros. As the invoices did not show the VAT amounts in (or converted to) the relevant national currency, namely sterling, they did not meet the requirements of the VAT Directive. This was an additional reason for rejection of the application, but (as considered below) it is not clear whether this was mentioned in HMRC’s letter dated 3 July 2006.

29.    Another question relating to that letter is whether it contained the wording mentioned by Mr Catterson in his witness statement. He indicated that, to avoid any possible ambiguity, HMRC’s ORU introduced an extra sentence to their refusal letters for applications which were returned as incomplete near or on the deadline. This wording emphasised to the person making the application that they had now missed the legislative deadline and that the resubmitted application would be refused as out of time. The sample letter attached to his statement referred to an application for a refund of VAT and explained that it did not constitute a completed claim for one or more of the reasons listed [the relevant boxes to be marked “x”]; it stated that the documentation sent “has therefore not been accepted and entered as a claim at this stage.” It continued with the relevant wording:

“I should advise you that the completed claim must be received at this office within the legislative deadline. Failure to do so will result in the application being refused.”

30.    As there was no definite evidence to show that the latter wording had been included, we find on the balance of probabilities that it was not. However, this does not affect the question whether a complete and valid claim had been made to HMRC by the final date of 30 June 2006. By that date, no valid original Certificate of Status had been provided to HMRC. The documentation which ITS provided to HMRC on Megaink’s behalf was therefore incomplete, so did not amount to a valid claim. This was the stated reason. It is not clear whether HMRC’s letter dated 3 July 2006 also would have showed an “x” marked in the box against the wording—

“Must be claimed in Sterling and supplier must include sterling amounts on invoices.”

31.    In the addendum to their later letter dated 26 March 2007 notifying approval of the claims for the 2006 period, HMRC included the following wording in connection with the re-application received on 3 November 2006 for refund of the 2005 invoices:

“Furthermore, the refused items are also in Euros. For future claims, it is a requirement that all invoices be raised in Pounds Sterling.”

We find this ambiguous. It could be taken as implying that the absence of invoices showing the VAT amount in sterling was not being treated as a reason for rejecting the application in respect of the 2005 invoices, or it could have meant that this was an additional reason to the principal one already mentioned, namely the late date for the submission of the required documentation to support a claim.

32.    The absence of the Certificate of Status from the application sent by ITS on 23 June 2006 meant that there was no basis for making a complete and therefore valid claim by the final date of 30 June 2006. Ignoring for the present the question of the invoices having been denominated in Euros and not having shown VAT amounts converted to sterling, we consider whether ITS’ submission of the Certificate of Status with their letter dated 16 September 2006 could have had any effect on the position.

33.    The Certificate of Status carried the date 18 September 2006. This meant that it could only be used to satisfy the requirements for claims made in respect of a period ending after that date, namely 2006; under regulation 178(2) of the 1995 Regulations a certificate of status issued not more than twelve months before the date of the claim is to be accepted for the purposes of that claim. Megaink’s Certificate of Status could not be effective for a claim made in respect of the 2005 period, and clearly it could not have been provided to HMRC by the deadline date of 30 June 2006. There was no suggestion in any of the correspondence that any earlier certificate might have existed, and as the application form VAT 65A signed by Megaink on 22 June 2006 carried the endorsement “First Application”, we find that no earlier certificate existed.

34.    Thus Megaink’s application failed for five reasons. The first was that, although documentation was sent to HMRC before 30 June 2006, it was insufficient to amount to a claim because no Certificate of Status was enclosed. The second was that the invoiced amounts were in Euros and that there was no conversion shown on the invoices of the VAT amounts from Euros to sterling. The third was that the final deadline of 30 June had already passed when HMRC returned the application to ITS as being incomplete, so any reapplication was bound to fail, even if all the required documentation were to accompany such reapplication. The fourth was that the Certificate of Status eventually provided to HMRC was not valid for the period covered by the reapplication. The fifth was that the reapplication made by ITS on 30 October 2006, received by HMRC on 3 November 2006, was out of time (and in addition relied on the Certificate of Status dated 18 September 2006).

35.    Megaink’s application in respect of the 2006 invoices was treated as a valid claim, as it fulfilled all the requirements and was treated by HMRC as an early claim for refund of the VAT on those invoices. Repayment of this VAT was not inconsistent with HMRC’s refusal to repay the VAT on the 2005 invoices, nor was this repayment evidence of any form of mistake on HMRC’s part in relation to the VAT on the 2005 invoices.

36.    Although we do not consider that HMRC made any mistake as such, we find it surprising that in the addendum to their letter dated 26 March 2007, after referring to the refusal of the application for repayment of the 2005 invoices on the grounds that it was out of time and (as referred to above) the invoices were in Euros, the ORU stated:

“This office would be prepared to reconsider these items again if/when the required information, amendments or documents are received.”

37.    Where an application is rejected on the grounds that it is out of time, this is a defect that cannot be rectified by provision of correct documentation; any application made after the final date cannot constitute a valid claim. In our view, it is inappropriate in “out of time” cases to make any offer of reconsideration, as this misleads applicants into thinking that there is some form of discretion on HMRC’s part to allow late claims. It is clear from the legislative framework, as examined in Areva and earlier cases, that there is no such discretion and that the time limit and other conditions must be strictly applied.

38.    As we do not consider that Megaink’s application or its reapplication amounted to a valid claim pursuant to the Eighth Directive and the related EU and domestic legislation, we dismiss its appeal. No application for costs was made (this being an appeal made before 1 April 2009) and we therefore make no order as to costs.

39.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN CLARK

TRIBUNAL JUDGE

RELEASE DATE: 10 June 2010