Press Room.
Further Bad News For The Global Financial Service Sector But
Good News For The UK Treasury
The European Court of Justice (ECJ) has found in favour of the
United Kingdom in an action brought against it by the European
Commission. The decision will be a blow to the financial services
and insurance sectors and means that the UK Government can deny
claims for the repayment of UK VAT incurred by businesses in those
sectors that are established outside the European Union (EU).
Businesses established outside the EU rely on a piece of
legislation, called the EU 13th Directive, to reclaim VAT incurred
in the UK. VAT recovery rules for international financial service
sector businesses are complex at the best of times. The UK
Government has interpreted the 13th Directive legislation to mean
that it can restrict entitlement to VAT recovery for those
financial service sector businesses established outside the
EU.
Although the Commission recognised that the UK’s implementation
of the 13th Directive was, strictly speaking, correct it argued
that it conflicted with the wording and purpose of the main VAT
Directive which governs the application of the tax across the EU.
The ECJ disagreed with the Commission and dismissed the action on
the basis that the UK has fully complied with the wording of 13th
Directive.
Lorraine Parkin, Head of VAT at Grant Thornton UK LLP says:
"This ruling will be a big disappointment to finance and insurance
businesses established outside the EU that were hoping to make
substantial claims for VAT refunds. Furthermore, it reinforces the
more favourable VAT recovery treatment received by EU established
financial service sector businesses trading outside the EU. The
commission perceived an anomaly between these two sets of
circumstances. However, the ECJ judgment confirms that the UK's
position is correct. "
This judgment is good news for UK HMRC and Treasury but bad news
for the global Financial Services sector established outside the
EU. It will take a change in primary legislation to alter the
position and a quick change does not seem likely. The answer is to
consider coming into the EU."
ENDS For further queries, please contact Nicola Daley (0207 728
2244) or via email on nicola.daley@gtuk.com