The Commissioners for Her Majesty's Revenue And Customs v British Telecommunications Plc [2014] EWCA Civ 433

‘(a) in respect of supplies of goods and services …, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;’

‘1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States. However, in the case of total or partial non-payment, Member States may derogate from this rule.’

‘23. … it must be held that these provisions give the Member States a margin of discretion, inter alia, as to the formalities to be complied with by taxable persons vis-à-vis the tax authorities of those States in order to ensure that, where the price is reduced after the supply has taken place, the taxable amount is reduced accordingly.’

‘18. The power to derogate, which is strictly limited to the latter situation [that of total or partial non-payment], is based on the notion that in certain circumstances and because of the legal situation prevailing in the member state concerned, non-payment of consideration may be difficult to establish or may only be temporary. It follows that the exercise of that power must be justified if the measures taken by the member states for its implementation are not to undermine the objective of fiscal harmonisation pursued by the Sixth Directive.’

‘84. … it has never been a cost-free exercise to present a petition against either an individual or a company. Quite apart from court fees, there are the costs of instructing professionals and the inherent risk that these fees and costs will never be recovered. A creditor, it is obvious, is bound to consider very carefully whether to take proceedings in respect of any debt. This is so where the debt exceeds the statutory limit for personal insolvency or for a corporate statutory demand; a fortiori in the case of a company debt of an amount below that limit. It is entirely unsurprising and entirely reasonable that an entity such as GMAC should have clear policies about its approach to the enforcement of unpaid debts through the courts and to take a commercial view about the cost-effectiveness of attempting to do so. Even if it is thought to be reasonable and indeed proportionate to require that a judgment be obtained for the debt (eg in the small claims court) it is an entirely different question whether it is proportionate or even reasonable to require the invocation of insolvency procedures and the proof of debt before bad debt relief can be claimed in respect of small debts.’

‘24. Recovery of overpaid VAT (1) Where a person has paid an amount to the Commissioners by way of value added tax which was not tax due to them, they shall be liable to repay the amounts to him. (2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose. … (4) No amount may be claimed under this section after the expiry of 6 years from the date on which it was paid, except where subsection (5) below applies. (5) Where an amount has been paid to the Commissioners by reason of a mistake, a claim for the repayment of the amount under this section may be made at any time before the expiry of 6 years from the date on which the claimant discovered the mistake or could with reasonable diligence have discovered it. (6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsection may make different provision for different cases. (7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of value added tax by virtue of the fact that it was not tax due to them. (8) The preceding provisions of this section apply to an amount paid before, as well as to an amount paid after, the day on which this section comes into force, except where the Commissioners have received a claim for repayment of the amount before that day. (9) The following paragraph shall be inserted at the end of section 40(1) of [VATA 1983] (appeals) – “(s) a claim for the repayment of an amount under section 24 of the Finance Act 1989 (recovery of overpaid tax).” …’

‘11. (1) Subsection (2) below applies where – (a) on or after 1st April 1989 a person has supplied goods or services for a consideration in money and has accounted for and paid tax on the supply, (b) the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and (c) a period of two years (beginning with the date of the supply) has elapsed. (2) Subject to the following provisions of this section and to regulations made under it the person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of tax chargeable by reference to the outstanding amount. (3) In subsection (2) above “the outstanding amount” means – (a) if at the time of the claim the person has received no payment by way of the consideration written off in his accounts as a bad debt, an amount equal to the amount of the consideration so written off; (b) If at that time he has received a payment or payments by way of the consideration so written off, an amount by which the payment (or the aggregate of the payments) is exceeded by the amount of the consideration so written off. …’

‘Claims for refunds of VAT relating to supplies made before 27th July 1990 may continue to be made in accordance with section 22 of [VATA 1983] notwithstanding the repeal of that section by [the 1990 Act].’

‘Other changes to the bad debt relief scheme are designed to help businesses and clarify the law. These will be effective from the time the Finance Bill receives the Royal Assent. These changes will …’ do various (mostly not relevant) things including, however, the last identified change, which was to ‘cancel the VAT Regulations covering the old (pre-1990) scheme of Bad Debt Relief’

‘(5) No claim for a refund may be made in accordance with section 22 of [VATA 1983] (old scheme for bad debt relief) at any time after the day on which this Act is passed’

‘(2) Claims for refunds of VAT shall not be made in accordance [with] section 36 of this Act in relation to – (a) any supply made before 1st April 1989; or (b) any supply as respects which a claim is or has been made under section 22 of [VATA 1983].’

‘(1) The requirement in section 80(4) of VATA 1994 that a claim under that section be made within 3 years of the relevant date does not apply to a claim in respect of an amount brought into account, or paid, for a prescribed accounting period ending before 4 December 1996 if the claim is made before 1 April 2009.’

‘… on the basis of the Upper Tribunal’s own expressed view, BT did not have any directly effective rights and the Upper Tribunal ought therefore to have taken that into consideration.’

‘190 … So far as domestic law is concerned, it is clear when the claim [under the Old Scheme] would first arise, namely when the Insolvency Condition was fulfilled. In the case of a directly enforceable claim, it is less clear when the claim would first arise. It would, we suppose, be when the facts first fell within Article 11C(1) absent any derogation by the Member State concerned but it is not at all clear to us when that would be. It is, of course, a factual question in any particular case, but what would be sufficient in order for a taxpayer to establish a directly enforceable claim is not, at least to us, obvious. A few things are, however, clear. The first is that many of GMAC’s bad debts giving rise to a directly enforceable claim (assuming the invalidity of the Property Condition and the Insolvency Condition) arose many years before the passing of the FA 1997. …’

‘Consequently, in the absence of duly adopted implementing measures, individuals may invoke the provisions of a directive which, from the viewpoint of content, are unconditional and sufficiently precise, against all national legislation which does not conform with it. Individuals may also invoke those provisions if they lay down rights which can be enforced against the State.’

‘30. That interpretation is borne out by art 11C(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person’s position, provides that, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount is to be reduced accordingly under conditions to be determined by the member states. 31. It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows therefore from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount for VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person.’

‘14. … it should be borne in mind that art 11A(1)(a) of the Sixth Directive provides, with a view to harmonising the taxable amount, that within the territory of the country the amount chargeable in respect of supplies of goods is everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party. 15. That provision embodies one of the fundamental principles of the Sixth Directive, according to which the basis of assessment is the consideration actually received … and the corollary of which is that the tax authorities may not in any circumstances charge an amount of VAT exceeding the tax paid by the taxable person … 16. In accordance with that principle, the first paragraph of art 11C(1) of the Sixth Directive defines the cases in which the member states are required to ensure that the taxable amount is reduced accordingly under conditions which are to be determined by the member states themselves. That provision therefore requires the member states to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. 17. Nevertheless, the second sub-paragraph of art 11C)1) of the Sixth Directive permits the member states to derogate from the abovementioned rule in the case of total or partial non-payment. 18. The power to derogate, which is strictly limited to the latter situation, is based on the notion that in certain circumstances and because of the legal situation prevailing in the member state concerned, non-payment of consideration may be difficult to establish or may only be temporary. It follows that the exercise of that power must be justified if the measures taken by the member states for its implementation are not to undermine the objective of fiscal harmonisation pursued by the Sixth Directive. 19. With regard to s. 11 of the 1990 Act, the United Kingdom seeks to justify the refusal to refund the tax on the ground that there is a greater risk of evasion where the unpaid consideration is not expressed in money. 20. That justification is unacceptable for two reasons. 21. First, it is clear from EC Commissioners v. Belgium (Case 324/82) [1984] ECR 1861 at 1882, para 29, that measures intended to prevent tax evasion or avoidance may not in principle derogate from the basis for charging VAT laid down in art 11 of the Sixth Directive, except within the limits strictly necessary for achieving that specific aim. 22. By excluding, generally and systematically, all transactions alike in which the consideration is not expressed in money from the refund of VAT, legislation of the kind at issue in the main proceedings alters the taxable amount for that class of transactions in a manner which goes beyond what is strictly necessary in order to avoid the risk of tax evasion. That is all the more obvious because in the circumstances of the case, as the United Kingdom government acknowledges in its written observations, there was no risk of evasion.’

‘85. We do not consider that it was justifiable to exclude from bad debt relief debts owed by an individual which do not exceed the statutory minimum [i.e. for presenting a bankruptcy petition]. That conclusion was not a proportionate response to the aim identified in [18] of the judgment in Goldsmiths or, indeed, of any other admissible aim. Further, we find it hard to categorise the derogation as reasonable on any possible meaning of that word. There is no material of which we are aware which would go anywhere near justifying the total exclusion from bad debt relief where the debt was less that the statutory limit in force at the relevant time. This, we add, has nothing to do with discrimination between cases which fall below the limit as compared with cases which fall above the limit (although there is such discrimination) but has everything to do with the scope of the power to derogate. 86. Further, we do not consider that it was a proportionate response, either, to require proof in an insolvency as a condition for relief in all cases which are not altogether excluded as a result of the statutory limit. This we consider is manifestly so in the case of a small debt, say, £100 or even less, owed by a company debtor. We do not consider that a regime of that sort is justifiable as a proportionate response to the legitimate aims of the UK government. There is nothing in the findings of the Tribunal, and, as far as we are aware, there was no evidence before them on the basis of which such justification could be established. Further, we do not, as in the case of debts below the statutory limit owing by an individual, even consider that it could be reasonable let alone proportionate to impose such a stringent requirement. 87. Having said that, it may be the case that where there is a large debt, it would be both reasonable and proportionate to require proof in insolvency. Where the line could be drawn could be a matter of dispute but it is not one we need to address and we decline to say anything about what could be said to be “large”. The point here is that the domestic legislation does not attempt to draw the line. As we see it, we must rule on whether the Insolvency Condition as a whole is valid or invalid. We have no doubt on that basis that it is invalid. It is certainly not a proportionate response to the legitimate aims of the UK; we do not even consider that it is a reasonable response. … 90. For completeness, we should deal with the suggestion made by Mr Cordara that because the UK later modified and then removed the relevant requirements, those requirements cannot have been necessary in the first place and were therefore not proportionate. Mr Lasok submitted that if this argument was accepted, it would effectively destroy the discretion which was intended to be given to Member States by the Directive and was therefore not a permissible approach. We agree with Mr Lasok. As with so many aspects of the law generally, there is a range within which a person or body of persons or even a State can operate reasonably. So far as concerns proportionality, the test appears to be that the national measure must, as Lord Hoffmann puts it [in C.R. Smith Glaziers (Dunfermline) Ltd v. Customs and Excise Commissioners [2003] UKHL 7, at [25]], be necessary “in the sense that the purpose could not have been achieved by some other means less burdensome to the persons affected”. But this cannot be seen as an absolutely rigid, black line, test. The word “necessary” is not to be construed strictly so as to be given the meaning which a logician or mathematician might ascribe to it. There is, we think, even in relation to necessity, a spectrum, albeit it is narrowly confined, within which different reasonable and objective minds can take different views about what is or what is not necessary. And, of course, there may be two different ways in which a permissible objective can be achieved, each of which carries a different detriment for the persons affected. It could not be said that necessity entailed the selection of one of them. Accordingly, we see nothing wrong with the proposition that a Member State could take the view that a particular measure was necessary, but nonetheless modify, or replace, that measure in the light of experience. 91. This chimes with the fact that the power to derogate is precisely that: it is a discretionary power to refuse bad debt relief where there is in fact a bad debt in the sense that the debt will never be paid, something which the Advocate General recognised at [15] of his opinion in Goldsmiths. As Mr Lasok puts it, the whole point about the discretion is that bad debt relief schemes can be organised in different ways with different trade-offs between their advantages and disadvantages.’

‘35. The principle of proportionality requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (see, to that effect, Case C-331/88 Fedesa and Others [1990] ECR I-4023, paragraph 13,and Jippes and Others, paragraph 81). 36. Finally, as regards judicial review of compliance with that principle, bearing in mind the wide discretionary power enjoyed by the Community legislature in matters concerning the common agricultural policy, the legality of a measure adopted in that sphere can be affected only if the measure is manifestly inappropriate in terms of the objective which the competent institution is seeking to pursue (see Fedesa and Others, paragraph 14, and Jippes and Others, paragraph 82). Thus, the criterion to be applied is not whether the measure adopted by the legislature was the only one or the best one possible but whether it was manifestly inappropriate (Jippes and Others, paragraph 83).’

‘There is an obligation to act within a reasonable time in all cases where, in the absence of any statutory rule, the principles of legal certainty or protection of legitimate expectation preclude Community institutions and natural persons from acting without any time-limits, thereby threatening, inter alia, to undermine the stability of legal positions already acquired. In actions for damages liable to result in a financial burden on the Community, the obligation to submit a claim for compensation within a reasonable time derives also from a need to safeguard the public coffers which is specifically given expression, as regards actions for non-contractual liability, in the five-year limitation period laid down by Article 46 of the Statute of the Court.’

‘16. First, by analogy with the situation applicable to the exercise of the right to deduct, the possibility of making an application for the refund of excess VAT without any temporal limit would be contrary to the principle of legal certainty, which requires the tax position of the taxable person, having regard to his rights and obligations vis-à-vis the tax authority, not to be open to challenge indefinitely (Ecotrade SpA v. Agennzia delle Entrate – Ufficio di Genova 3 Joined Cases C-95/07 and C-96/07 [2008] STC 2626, [2008] ECR I-3457, para 44).’

‘69. It follows that the Sixth Directive, interpreted in accordance with the principles of protection of legitimate expectations and legal certainty, does not preclude the withdrawal by a Member State of the right to opt for taxation of lettings of immovable property which results in adjustment of deductions made in respect of immovable property acquired as capital goods which is let pursuant to Article 20 of the Sixth Directive. 70. Although Article 20 of the Sixth Directive does not, as such, breach the above principles, it cannot none the less be ruled out that the national legislature has breached them in that, without taking account of a legitimate expectation of taxable persons which had to be protected, it suddenly and unexpectedly withdrew the right to opt for taxation of lettings of immovable property, when the objective to be attained did not require it, without allowing taxable persons bound by leases current at the time of entry into force of the law the time to adjust to the new legislative situation. …’

‘72. The Gemeente Leusden argues that it is impossible for it to alter the rent, first because of the uncertain outcome of the court procedure required and, second, because of the financial difficulty in which the sports club would be placed if it had to pay a higher rent. 73. To begin with, it must be observed that the argument that the sports club would find it difficult to finance a higher rent is not based on a legitimate expectation of the taxable person itself, that is to say the Gemeente Leusden, but on an expectation of its lessee, the sports club. That argument is thus not relevant and cannot be taken into consideration.’

‘36. It follows that the provisions of Directive 2003/30 do not require the Member State to introduce, or maintain in force, a tax exemption scheme for biofuels. It is clear in that regard from recital 19 to the directive that, although a tax exemption scheme is one of the means available to the Member States for attaining the objectives laid down in the directive, other means may also be envisaged, such as financial assistance for the processing industry and the establishment of a compulsory rate of biofuels for oil companies. 37. Moreover, it is apparent from Article 3(4) of Directive 2003/30 that the Member States also enjoy a wide discretion with regard to the products which they wish to promote in order to attain the objectives laid down in the directive, since they may choose to give priority to the promotion of certain types of fuels by taking account of their overall cost-effective climate and environmental balance, while also taking into account competitiveness and security of supply. 38. In those circumstances, it must be decided that no right to a tax exemption can be deduced from the provisions of the directive, particularly in regard to a specific product.’

‘43. It must be recalled that the principles of legal certainty and protection of legitimate expectations form part of the Community legal order. On that basis, these principles must be respected by the Community institutions, but also by Member States in the exercise of the powers conferred on them by Community directives (see, to that effect, Case C-381/97 Belgocodex [1998] ECR I-8153, paragraph 26; Case C-376/02 “Goed Wonen” [2005] ECR I-3445, paragraph 32; and Case C-271/06 Netto Supermarket [2008] ECR I-771, paragraph 18). 44. It follows that national rules such as those at issue in the main proceedings, which are intended to transpose the provisions of Directives 2003/30 and 2003/96 into the domestic legal order, must respect those general principles of Community law. 45. According to settled case-law, it is for the referring court alone to determine whether such rules comply with those principles (see, inter alia, Case C-384/04 Federation of Technological Industries and Others [2006] ECR I-4191, paragraph 34; Joined Cases C-347/06 ASM Brescia [2008] ECR I-5641, paragraph 72), the Court, in a reference for a preliminary ruling under Article 234 EC, being solely competent to provide the national court with all the criteria for the interpretation of Community law which may enable it to determine the issue of compatibility (see, inter alia, Joined Cases C-286/94, C-340/95 and C-47/96 Molenheide and Others [1997] ECR I-7281, paragraph 49). 46. It should be recalled in that regard that, according to the case-law, the principle of legal certainty, the corollary of which is the principle of the protection of legitimate expectations, requires on the one hand, that rules of law must be clear and precise and, on the other, that their application must be foreseeable by those subject to them (see, inter alia, Case C-63/93 Duff and Others [1996] ECR I-569, paragraph 20; Case C-107/97 Rombi and Arkopharma [2000] ECR-3367, paragraph 66; and Case C-17/03 VEMW and Others [2005] ECR I-4983, paragraph 80). That requirement must be observed all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know precisely the extent of the obligations which those rules impose on them (Case C-17/01 Sudholz [2004] ECR I-4243, paragraph 34). 47. With regard to the requirement of clarity and precision, it must be held that, in the present case, the national rules which withdrew the tax exemption at issue in the main proceedings appear to comply with that requirement. 48. With regard to whether the withdrawal of the tax exemption scheme at issue was foreseeable, it must be pointed out that although the withdrawal was only for the future and did not therefore undermine the exemption obtained by the applicant in the main proceedings in respect of 2005 and 2006, both the Mineral Oil Tax Law, in the version which entered into forced on 1 January 2004, and the Law onthe Taxation of Energy, in the version which entered into force on 1 August 2006, provided for the application of the tax exemption scheme until 31 December 2009. With regard to biofuels such as the product at issue in the main proceedings, however, the rules adopted subsequent to 18 December 2006 withdrew the tax exemption scheme, with effect from 1 January 2007, that is to say, before the date previously announced. 49. It must, however, be recalled that, as the Court has already ruled, the principle of legal certainty does not require that there be no legislative amendment, requiring as it does, rather, that the legislature take account of the particular situations of traders and provide, where appropriate, adaptations to the application of the new legal rules (see VEMW and Others, paragraph 81). … 51. With regard, more specifically, to the principle of the protection of legitimate expectations, it must however be pointed out that, in the main proceedings, the national legislature withdrew, before the date previously announced, a tax exemption scheme as regards which it had indicated on two occasions, by way of express legal provisions, that it would be maintained in force until a later date which had been clearly announced. 52. It must be accepted that a trader, such as the applicant in the main proceedings, who commenced his activities under the tax exemption scheme in favour of biofuels at issue in the main proceedings, and who, to that end, made costly investments, could see his interests considerably affected by the withdrawal of that scheme before the date announced, all the more so if that withdrawal takes place suddenly and unforeseeably, without leaving him enough time to adapt to the new legal situation. 53. It is clear from the Court’s settled case-law that any economic operator on whose part the national authorities have promoted reasonable expectations may rely on the principle of the protection of legitimate expectations. However, where a prudent and circumspect economic operator could have foreseen that the adoption of a measure is likely to affect his interests, he cannot plead that principle if the measure is adopted. Furthermore, economic operators are not justified in having a legitimate expectation that an existing situation which is capable of being altered by the national authorities in the exercise of their discretionary power will be maintained (see, to that effect, in particular, Joined Cases C-37/02 and C-38/02 Di Lenardo and Dilexport [2004] ECR I-691, paragraph 70 and the case-law cited, and Case C-310/04 Spain v. Council [2006] ECR I-7285, paragraph 81). 54. As regards the expectation which a taxable person might have as to the application of a tax advantage, the Court has already held that when a directive on fiscal matters gives wide powers to the Member States, a legislative amendment adopted under the directive cannot be considered to be unforeseeable (Joined Cases C-487/01 and C-7/02 Gemeente Leusden and Holin Groep [2004] ECR I-5337, paragraph 66). … 57. However, it is for the national court to determine whether a prudent and circumspect economic operator could have foreseen the possibility of such a withdrawal in a context such as that of the main proceedings. As the case concerns a scheme laid down under national legislation, the procedures for dissemination of information normally used by the Member State which adopted it and the circumstances of the case must be taken into account when the national court makes an overall and specific assessment of the question whether the legitimate expectations of the economic operators covered by those rules were duly respected in the specific case (see, to that effect, “Goed Wonen”, paragraph 45). … 59. The possibility cannot be ruled out that those circumstances, or some of them, were such as to indicate, and this is a matter for the national court to consider in the framework of the main proceedings, that the national rules which withdrew the tax exemption at issue and which entered into force in a very short period of time, did not receive, at that time, a sufficient degree of publicity among interested parties … thereby making access to the applicable rules of national law more difficult for the persons subject to those rules. … 67. It must therefore be concluded that it is by taking account of all the foregoing factors, and all other circumstances relevant to the case before it, that the national court must consider, in the context of an overall assessment in the specific case, whether the applicant in the main proceedings, as a prudent and circumspect operator, had sufficient information to permit it to expect that the tax exemption scheme at issue in the main proceedings could be withdrawn before the date initially laid down for its expiry.’

‘151. … It is correct, no doubt, to describe this as a transitional provision in the sense that it provides for the Old Scheme to apply in relation to old supplies and would, in the course of time, become exhausted. But that is not to say that it was transitional in the sense of being merely temporary in the expectation that it would in due course be abrogated. As with FA 1990, we do not consider that the provisions of the VATA 1994 can be seen as a signal that the provisions of the Old Scheme would be likely, in the future, to be repealed rather than to be allowed to run their course.’

‘193 … This case related to claims for input tax repayment under regulation 29 of the VAT regulations 1995. Those regulations, it is to be noted, required a claim to be made in the period in which the VAT became chargeable, but (in the words “save as the Commissioners may otherwise allow or direct”) reserved a discretion to the Commissioners. 194. A new regulation [29(1A)] was introduced which removed the right under regulation 29 to claim a deduction more than three years after the return date for the period in which the VAT became chargeable. The question was whether this was permissible without the creation of a sufficient transitional period in which outstanding claims could be made, and whether the way in which the change had been advertised created such a period. Lord Hope (see at [1]), Lord Carswell (see at [77]) and Lord Neuberger (see at [103]), and as such, a majority of the House, all appear to have considered that the communication of a transitional period might be made by the Administration rather than the legislature, but said that it must be widely disseminated.’

‘202. In our view, the position in the present case is much closer to Fleming than it is to Gemeente Leusden and Plantanol. First of all, in both the present case and in Fleming, the taxpayer has a claim (in the present case, a directly enforceable right under Article 11C(1) on the footing that the Insolvency Condition and the Property Condition are incompatible with EU law) to reduce its liability for tax. In contrast, the impact of the changes in Gemeente Leusden and Plantanol was on the amount of tax which would become payable because of the way the transactions in question would be charged. Secondly, the total exclusion of bad debt relief for supplies made before 1 April 1989 – in contrast with the adoption of a replacement scheme applicable to such supplies – cannot, we consider, be justified as a condition or derogation within Article 11C(1). The only justification, as we see it, is that the elimination of claims under section 22 (as appropriately adapted for directly enforceable claims) is the imposition of a reasonable time limit within such claims must be made. The fact that a replacement scheme might have been adopted (and in such a case, the Gemeente Leusden and Plantanol approach might well be correct) is not an answer in the case where the section 22 claim was altogether abolished. A taxpayer in the position of GMAC with an accrued directly enforceable claim was, we consider, in substantially the same position as Mr Fleming. In our view, GMAC had a legitimate expectation that the period during which it would be able to make a claim for bad debt relief in the absence of any replacement scheme would not be brought to an end without an adequate opportunity being given to make a claim. Thus, just as the introduction of a shortened time limit without a transitional period in Fleming breached the principles of effectiveness and legitimate expectations, so, in the present case, the termination of the right to make a claim under section 22 without an adequate opportunity to make a claim would breach those principles unless an adequate transitional period was provided for. 203. That conclusion leads on to the question of notice and transitional provisions. It is important to see precisely what it was that the House of Lords decided in Fleming. That case concerned the retrospective shortening of a time limit for making a claim. It applied in respect of accrued rights. It was held, that to be compliant with EU law (i) the new time limit had to be fixed in advance so as to give legal certainty (ii) where the new time limit was retrospective, there had to be an adequate transitional provision so that those with accrued rights had a reasonable time within which to make their claims before the new time limit applied, it being for Parliament, or HMRC by means of an announcement disseminated to taxpayers to introduce prospectively an adequate transitional period (iii) that where a new time limit was introduced without any, or any reasonable, transitional period, it would be a breach of EU law to enforce the new time limit in relation to accrued rights at least for a reasonable period (iv) that the adequacy of the transitional period was to be determined by reference to the principles of effectiveness and legitimate expectations, so that the period was not so short as to render it practically impossible or excessively difficult for a person with an accrued right to make his claim and (v) where the national court decided that the transitional period was inadequate, it had to fashion the remedy necessary to avoid an infringement of EU law which would normally be to disapply either permanently or temporarily the operation of the retrospective application of the new time limit. As to (iii), the reasonable period must itself be certain. This appears most clearly from the speech of Lord Neuberger at [88] and [90], although it is implicit in the speeches of Lords Hope and Scott and of Lord Carswell too.’

‘211. … The UK government had provided a scheme of bad debt relief in the shape of the Old Scheme which it alleged, and continues to allege, was compliant with EU law. HMRC cannot, when it comes to determining whether such a taxpayer is entitled to a transitional period, and if so what period, rely on our decision that the Old Scheme was not in fact compliant, to deprive the taxpayer of that opportunity. 212. GMAC is not, of course, such a taxpayer since it did not, and cannot now, fulfil the Property Condition. But the fact that there may be other taxpayers who could seek to rely on a transitional period sufficient to allow the Insolvency Condition to be satisfied has an impact, in our view, on the appropriate transitional period in respect of GMAC’s directly enforceable claims. It would be wrong in principle, we consider, for GMAC (and others in the same position) to be required to bring a claim within a shorter period than that applicable to persons potentially entitled to make a claim under domestic legislation. A person seeking to enforce a claim under EU law must not be treated in a less favourable way than a person seeking to enforce an equivalent right under domestic law. Accordingly, we conclude that the period from 26 November to 18 March 1997 was not an adequate transitional period within which GMAC could be required to asserts its directly enforceable rights.’