Supreme Court Clarifies VAT Taxation Rules for Channel Islands in Jersey Choice Ltd v His Majesty's Treasury Case

Citation: [2024] UKSC 5
Judgment on

Introduction

The Supreme Court’s decision in Jersey Choice Ltd v His Majesty’s Treasury [2024] UKSC 5 offers a profound elucidation of the legal principles surrounding the taxation of goods coming from territories outside the EU’s Value Added Tax (VAT) area but within the customs union. The case hinges on the nuanced interpretation of both fiscal and customs regulations as they pertain to the Channel Islands’ unique position relative to the UK and the EU. This article analyses the key facets of the case law, the legal principles evoked, and the implications for similar territories with non-standard positions in EU law.

Key Facts

Jersey Choice Ltd (JCL), a company registered in Jersey, specialized in exporting horticultural products to the UK via mail order. JCL took advantage of Low Value Consignment Relief (LVC Relief) until it was revoked by the Finance Act 2012 for goods dispatched from the Channel Islands. The company argued this removal breached EU law, specifically in relation to the free movement of goods and general principles including equal treatment and proportionality. The initial claim was struck out, a decision upheld by the Court of Appeal, prompting JCL to appeal to the Supreme Court.

The Supreme Court confronted several critical legal principles:

  1. Distinction Between Fiscal Measures and Customs Duties: Central to the case was determining whether the imposition of VAT after the withdrawal of LVC Relief constituted a “charge having equivalent effect to customs duties” (under TFEU articles 28 and 30) or a form of internal taxation (under article 110 TFEU).

  2. Justiciability of General Principles of EU Law: JCL posited that the UK’s exercise of discretion in the removal of LVC Relief must respect general EU principles such as equal treatment, even though Jersey is outside the EU’s VAT Directive area.

  3. Application of Equal Treatment Principle: JCL’s situation raised the question of whether businesses in territories within the EU customs union but outside the VAT area, like the Channel Islands, fall within the scope of the principle of equal treatment regarding the taxation of imports.

  4. Protection of Fundamental Rights: Additionally, the Court was urged to consider the overarching EU law principles articulated in article 19(1) TEU and article 47 of the Charter of Fundamental Rights of the European Union (the “Charter”), ensuring effective legal protection of rights conferred by EU law.

Outcomes

The Court made several key determinations:

  1. Fiscal Measure Classification: The withdrawal of LVC Relief was concluded to be a matter of internal taxation, not a customs duty, thus needing assessment under VAT law (specifically article 110 TFEU).

  2. Channel Islands’ Status: Despite being within the EU customs union, Jersey and similar territories are treated as third territories for the purposes of VAT-based charges. It was established that no general EU law principle necessitates equal treatment in taxing products from such territories.

  3. Rejection of Equal Treatment Argument: The Court dismissed the argument for the principle of equal treatment as unfounded, given the Channel Islands are considered third territories for VAT purposes, thus not entitled to the same treatment as Member States or other third territories.

  4. Rejection of Fundamental Rights Breach: The Court found no breach of fundamental rights, as such rights pertain to EU law-infringements, not arising in JCL’s circumstances.

Relevant precedents that were discussed include NCC Construction Danmark A/S v Skatteministeriet (Case C-174/08) and Offene Handelsgesellschaft in Firma Werner Faust v Commission of the European Communities (Case 52/81), amongst others. These cases reinforced the distinction between charges under fiscal measures and customs duties and clarified the absence of a principle of equal treatment of third countries in EU law.

Conclusion

The Supreme Court’s judgment in Jersey Choice Ltd v His Majesty’s Treasury establishes substantive legal principles elucidating the application of VAT laws to territories with unique EU statuses. The key takeaway is that for territories like the Channel Islands, the imposition of VAT on imports is governed by fiscal, not customs, regulations, and the principle of equal treatment does not extend to different treatment between third territories or third countries in taxation matters. The case clarifies that the unique position of the Channel Islands within the EU customs union does not afford them the same tax-related rights as EU Member States or grant them protections typically associated with non-EU third countries.