“(a) Brexit and the implementation period 10. The moment that the United Kingdom ceased to be a member of the European Union is identified with great precision as 11 pm GMT on31 January 2020 . However, the process of withdrawal, in particular as regards its legal consequences, has been a complex and gradual one. Many of those consequences were dealt with by the provisions of theEuropean Union (Withdrawal) Act 2018 (“theWithdrawal Act 2018 ”) which received Royal Assent on26 June 2018 having completed its passage through both Houses of Parliament a few days earlier. 11. The date set for the United Kingdom to cease to be a member by theWithdrawal Act 2018 , as it originally entered into force, was29 March 2019 . The term “exit day” used in that Act was defined in section 20(1) as29 March 2019 at 11 pm (that being midnight Central European Time).Section 1 of the Withdrawal Act 2018 provided simply that “The European Communities Act 1972 is repealed on exit day”
“1. Introduction This explanatory memorandum has been prepared by Her Majesty’s Revenue and Customs (‘HMRC’) on behalf of Her Majesty's Treasury and is laid before the House of Commons by Command of Her Majesty. 2. Purpose of the instrument 2.1 This Order amends articles 2 and 3 of theValue Added Tax (Input Tax) (Specified Supplies) Order 1999 (‘SSO’) to restrict its application in certain circumstances in order to prevent avoidance. In accordance with the European vires, the SSO allows businesses who export certain financial services to customers in countries outside the European Union (‘EU’) to reclaim the VAT they incur while providing those services. However, it does not allow companies to reclaim this VAT when these services are supplied within the EU. 2.2 The SSO is currently being exploited by some insurance companies who have entered into ‘looping’ arrangements whereby insurance intermediaries based in the United Kingdom (‘UK’) supply their services to insurance companies based outside the EU who then use those services to make supplies of insurance services back to customers in the UK. This allows these UK based companies to reclaim the VAT incurred on making supplies of insurance even though the ultimate customers (the insured parties) are based in the UK and thereby gain a competitive advantage over other UK based companies. This Order seeks to prevent this form of ‘looping’ by ensuring that there is no recovery of input tax where the final customer of the insurance services is based in the UK, as was intended. … 7. Policy background What is being done and why? 7.1 This Order amends the SSO to close down a VAT avoidance scheme which relies on VAT rules which allow recovery of input tax incurred on exempt financial services supplied to recipients outside the EU. 7.2 … 7.3 This measure addresses a particular version of off-shore looping which is currently found almost exclusively in the insurance sector and involves looping insurance supplies via an overseas territory. The ‘offshore looping’ structure that this Order is intended to prevent was the subject of a First Tier Tribunal decision in a case concerning Hastings Insurance Services which ruled in favour of the taxpayer. Following this HMRC loss, other insurers have made it clear that, if this distortion is not addressed, they will have to adopt similar structures to compete. MPs have also criticised this avoidance and called for Government action. 7.4 As a consequence, this Order amends UK legislation to ensure that there is no VAT recovery where the final customers of the insurance services belong inside the UK, as intended.”
“… that preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive.”
“… Article 273 of that directive [the PVD] is necessarily concerned with the adoption of measures that do not derogate from that directive. …”
“… the Court has repeatedly held that Article 273 of the VAT Directive does indeed afford discretion to the Member States as regards the means of achieving the objectives of recovering VAT in full and combatting fraud.”
“It follows from the settled case-law of the Court that, whenever the provisions of a directive appear, so far as their subject matter is concerned, to be unconditional and sufficiently precise, they may be relied upon before the national courts by individuals against a Member State …”
“… means that the regulation takes effect in the domestic law of the Member States of the EU without the need for any domestic law measure of implementation or transposition. Provisions have direct effect if they confer rights directly on individuals which those individuals can enforce in the domestic courts, again without the need for domestic implementing measures.”
“91. The court did not rule on the question of whether article 6(2) has direct effect. Section 4(3) does not, however, require that the particular provision in issue (here article 6(2)) has been held to have direct effect. It only requires that it is “of a kind” that has been held to have direct effect. There is a close relationship between article 6(2) and 6(3). They both require the national authorities to take steps to achieve the aims of the Habitats Directive and, in particular, to avoid deterioration of habitats and significant disturbance of species in the special areas of conservation. Article 6(3) applies prospectively. Article 6(2) enables a retrospective check that the article 6(3) steps remain adequate. Article 6(2) is thus “of a kind” that was recognised in Waddenzee as having direct effect. 92. Further, the question of whether article 6(2) has legal effect in domestic proceedings was addressed by the decision of the Upper Tribunal in Warren. Upper Tribunal Judge Markus QC held (in a judgment given on2 October 2019 ), at [88], that the duties on member states under article 6(2) are binding on all public authorities of a member state, including the courts: “The tribunal was bound to act consistently with the precautionary principle because the duties on member states under article 6(2) are binding on all authorities of a member state including the courts…” 93. Judge Markus cited Waddenzee at [65]–[66]. Mr Dale-Harris argues that Judge Markus was saying only that article 6(2) was binding, without expressly stating in terms that it had direct effect in domestic law. That is correct so far as it goes, but the effect of Judge Markus’ judgment was to recognise and enforce the precautionary principle that is inherent in article 6(2). This is sufficient to satisfy the test in section 4(3) of the 2018 Act. Mr Dale-Harris further argues that Warren was decided per incuriam because the judge had not appreciated that Waddenzee only decided that article 6(3) had direct effect and had made no such finding in respect of article 6(2). I disagree. There is no indication in Warren that Judge Markus had misunderstood the ambit of the court’s finding in Waddenzee. Her citation of Waddenzee at [65]–[66] was entirely apt. Although those passages only concern article 6(3), their rationale reads across to article 6(2). They therefore provide support for Judge Markus’ conclusion. In addition, even if Warren was decided per incuriam, that is not relevant to the section 4(2) test. That test is satisfied once a case is identified that recognises article 6(2) as being enforceable in domestic proceedings. The statute expressly provides that it is not necessary for that to be an essential part of the court’s decision. It is not relevant to the section 4(2) test to enquire as to whether the case was correctly decided or was decided per incuriam. The position might be different if the decision had been overturned on appeal, or later overruled, but that is not the case here. 94. Accordingly, by reason of section 4 of the 2018 Act, article 6(2) continues to be recognised and available in domestic law and is to be enforced accordingly.” “The tribunal was bound to act consistently with the precautionary principle because the duties on member states under article 6(2) are binding on all authorities of a member state including the courts…”
“In the light of those considerations, the answer to the first question is that arts 9, 168 and 169 of Directive 2006/112 must be interpreted as precluding national legislation which permits neither partners nor their partnership to exercise the right to deduct input VAT on the investment costs incurred by those partners, before the creation and registration of the partnership, for the purposes of and with the view to its economic activity.”
“… supplied the payment services to a customer established outside the EU then AESEL was entitled, under Article 169(c) PVD, to credit for the input tax incurred on goods and services that were attributable to those supplies.”
“Article 169(a) PVD extends that right of deduction to goods and services that are used for transactions relating to the activities described in the second subparagraph of Article 9(1), but carried out outside the Member State in which the input VAT is sought to be deducted.”