T 7. International enforcement
GENERAL
No rule against recognising foreign tax laws to resolve dispute
"[139] The fact that, at the validity trial the Court may have to engage in a detailed examination or even critique of the Danish WHT regime, as I have said, does not convert the claim into an assertion of sovereign power by SKAT or otherwise bring it within Dicey Rule 3. This is simply an example of the recognition by the Court of the relevant foreign laws in order to resolve the dispute before the Court." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Rule against direct or indirect enforcement of a claim for tax which is due but unpaid
"[126] The critical starting point for the purposes of Ground 1 of this appeal is to focus on the scope of Dicey Rule 3. What it renders inadmissible (whether under the narrower revenue rule or the wider sovereign powers rule) is an action, that is a claim, to enforce directly or indirectly a foreign revenue, penal or other public law. In its narrower form, the revenue rule, what it prohibits is enforcement of a direct or indirect claim for tax which is due but unpaid, as is clear from the speeches of the House of Lords in Government of India and from the passages from the speech of Lord Mackay in Williams & Humbert which I cited at [41]-[42] above..." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Depends on the substance of the claim
"[127] It is also clear from a number of authorities that, in determining whether a claim is inadmissible by virtue of Dicey Rule 3, the Court must examine the substance of the claim to see whether it is really a claim to recover foreign revenue." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Essential feature is an unsatisfied claim to tax
"[128]...Furthermore, because there is no unsatisfied claim to tax, the "essential feature" of the revenue rule as Lord Mackay described it in Williams & Humbert is absent. There is no qualification in his judgment of that essential feature where the claimant is the sovereign foreign state itself, as suggested by Ms Macdonald QC. Rather he expresses the limitation on the revenue rule in quite categorical terms. Accordingly, there being no unsatisfied claim to tax in the present case, the revenue rule does not apply, even though SKAT may be an emanation of the Danish state." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Reason for rule: assertion of sovereign authority not admissible
"[139] In this context, Mr Beal QC relied upon what the Court of Appeals for the Second Circuit identified in Nabisco (as referred to at [96]-[97] above) as one of the concerns the revenue rule was designed to address: "policy complications may follow when one nation's courts analyze the validity of another nation's tax laws." However, having considered the preliminary issues annexed to the judge's July 2020 CMC Order, the issues for determination at the validity trial are not concerned with the validity of the WHT Act or the regime as such. In any event: (i) the revenue rule does not apply here because there is no claim to outstanding tax for the reasons I have given and (ii) at least in this jurisdiction, the preferred rationale for the revenue rule, even if it did apply, is that an assertion of sovereign authority by a foreign state within the territory of our Courts is not admissible here; see the citation from the speech of Lord Goff in Re State of Norway's Application at [32] above. The fact that, at the validity trial the Court may have to engage in a detailed examination or even critique of the Danish WHT regime, as I have said, does not convert the claim into an assertion of sovereign power by SKAT or otherwise bring it within Dicey Rule 3. This is simply an example of the recognition by the Court of the relevant foreign laws in order to resolve the dispute before the Court." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Essential feature is an unsatisfied claim to tax
"[128]...Furthermore, because there is no unsatisfied claim to tax, the "essential feature" of the revenue rule as Lord Mackay described it in Williams & Humbert is absent. There is no qualification in his judgment of that essential feature where the claimant is the sovereign foreign state itself, as suggested by Ms Macdonald QC. Rather he expresses the limitation on the revenue rule in quite categorical terms. Accordingly, there being no unsatisfied claim to tax in the present case, the revenue rule does not apply, even though SKAT may be an emanation of the Danish state.
...
[134]...However the fraud here was not fraud by the taxpayer in evading tax. There was no tax due and those who committed the fraud were never taxpayers. Contrary to the alleged fraud defendants' submissions, there never was a taxpayer/tax authority relationship between the Solo etc Applicants and SKAT, nor was one created by the Solo etc Applicants and the alleged fraud defendants having abused the withholding tax and refund system to defraud SKAT. As Judge Kaplan pithily put it in his Memorandum Opinion in the SKAT Litigation in New York referred to at [44] and [45] above: "the only reason the money was lost is because the defendants in effect allegedly stole it, and the only reason it supposedly concerns tax revenue is because the defendants' alleged victim was the Danish tax authority."" (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
The fact that the tax has been evaded fraudulently does not take the case outside the rule
"[134]...They are all cases which were fairly and squarely within the revenue rule because they were claims to recover unpaid tax and the fact that there had been fraud in evading tax did not take the case outside the revenue rule...
[135]...This is also the answer to the alleged fraud defendants' reliance on the article by Lord Collins in the Law Quarterly Review. What Lord Collins was focusing on was fraud by a taxpayer in evading tax which is due and he was making the point quite rightly (and as Lord Pannick QC accepted) that, in that scenario, the fraud does not take the case outside the revenue rule..." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Fraudulently attempting to characterise oneself as a taxpayer to secure a refund does not engage the rule
"[136] That attempt to characterise themselves as taxpayers cannot possibly bind SKAT as the victim of their fraud and the alleged fraud defendants cannot seek to take advantage of their own wrongdoing to bring themselves within Dicey Rule 3." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Rule does not apply to recover repayment of 'tax' that were never due
"[127]...The basis of the claim is that, by fraudulent misrepresentations, the alleged fraud defendants induced SKAT to believe that the Solo etc Applicants had been shareholders who had received dividends and were thus liable to pay income tax which was withheld at 27%, but who were entitled to receive a refund. However, no tax was ever in fact due from the Solo etc Applicants. Whatever tax was due on the dividends of the relevant Danish companies was paid by legitimate shareholders. It follows that, although SKAT was induced by the fraud to believe that what it was refunding to the Solo etc Applicants was that portion of withholding tax which was not due because of the operation of a DTA, in reality the "refunds" were not of tax at all, but were abstraction of SKAT's funds in the same way as if the alleged fraud defendants had broken into the safe in SKAT's office and stolen the money.
[128] In my judgment, this claim against the SKAT defendants is not a claim to unpaid tax or a claim to recover tax at all. It is a claim to recover monies which had been abstracted from SKAT's general funds by fraud. The alleged fraud defendants' submission that the claim to the refund is still a claim to tax is simply wrong as a matter of analysis and the judge fell into error in accepting that submission..." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Not affected by the fact that the claim will involve a detailed examination of foreign tax system to assess whether claims to repayment were valid
"[138] Much was sought to be made by the alleged fraud defendants of the fact that, at any validity trial, there would be a detailed examination of the Danish WHT regime and possible criticism of it and of SKAT's systems and control. However, that does not somehow convert the claim into one to enforce that tax regime. It would be no more than recognition of the relevant Danish tax laws and the regime they put in place as part of the determination by the Court as to whether the alleged fraud was committed. Recognition of foreign revenue laws is permissible. As Lord Keith put it in Government of India in his approval of Peter Buchanan Ltd v McVey: "there are circumstances in which the courts will have regard to the revenue laws of another country." Another example of a case where the English Courts have recognised a foreign law, outside the revenue context, is the decision of this Court in Iran. (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Wider rule against claims involving the exercise or assertion of a sovereign right
"[126]...In its wider form, the sovereign powers rule, it focuses on whether the claim is one which involves the exercise or assertion of a sovereign right, as stated in the passage in [50] of the decision of this Court in Mbasogo:"The critical question is whether in bringing a claim, a claimant is doing an act which is of a sovereign character or which is done by virtue of sovereign authority; and whether the claim involves the exercise or assertion of a sovereign right. If so, then the court will not determine or enforce the claim."" (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Wider rule does not apply to recovery of money obtained by fraud
"[129] The argument by the alleged fraud defendants that the claim is precluded by the wider sovereign powers rule within Dicey Rule 3 is equally misconceived. In bringing a claim to recover the monies of which it was defrauded, SKAT is not doing an act of a sovereign character or enforcing a sovereign right, nor is it seeking to vindicate a sovereign power. Rather it is making a claim as the victim of fraud for the restitution of monies of which it has been defrauded, in the same way as if it were a private citizen.
[130]...I very much doubt whether payments induced by fraudulent misrepresentation can properly be described as sovereign acts, since, as Lord Pannick QC submitted, the effect of the fraud is to render those payments a nullity or invalid, but even if they could be described as sovereign acts, it simply does not follow that the claim to recover the monies is somehow a sovereign act or the vindication of a sovereign power. On the contrary, in revoking the refunds and seeking to recover the monies, SKAT is not seeking to vindicate those acts even if they were sovereign, but to invalidate them. The alleged fraud defendants' submissions confuse the circumstances in which the fraud was perpetrated with the claim to recover the monies." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
- Pursuing a right that could equally belong to individual is not a sovereign act
"[131] Although there is no English authority directly on point which decides that a claim such as the present one is not a sovereign act or the vindication of a sovereign act, that was clearly the view of Dr Mann in the articles which were expressly approved by this Court in Mbasogo. Thus, in his 1954 article quoted at [42] of the judgment in Mbasogo, Dr Mann said:
"Where the foreign state pursues a right that by its nature could equally well belong to an individual, no question of a prerogative claim arises and the state's access to the courts is unrestricted. Thus a state whose property is in the defendant's possession can recover it by an action in detinue. A state which has a contractual claim against the defendant is at liberty to recover the money due to it. If a state's ship has been damaged in a collision, an action for damages undoubtedly lies."" (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Not limited to claims of rights in real or personal property, includes reparations for one aggrieved
"[133] ... claims by a state which will be categorised as ones which could just as well be brought by a private citizen and thus outside Dicey Rule 3, are not limited to "patrimonial" claims, that is claims in respect of rights in real or personal property. This is clear from the examples which Dr Mann gives. It is also clear from the New York state cases to which Lord Pannick QC referred the Court. As the Court said in Nordrhein-Westfalen v Rosenthal, the case where the German federal state sought repayment of monies wrongfully demanded by the defendant under the Nazi indemnification laws: "The object of the action is not 'vindication of the public justice' but 'reparation to one aggrieved'". In my judgment, that description of the object of the action is an entirely apt one in the present case." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Claims by liquidators
"[17] The judge went on to consider the decision of the Court of Appeal in QRS v Frandsen [1999] 1 WLR 2169 where the defendant had asset-stripped the company and the liquidator was suing him for breaches of his duties to the company, in substance to recover on behalf of a foreign sovereign tax authority taxes due from and unpaid by the company. The defendant applied to strike out the claims as bound to fail because they were precluded by Dicey Rule 3. The judge at first instance struck out the claims and that decision was upheld by the Court of Appeal which confirmed that Dicey Rule 3 applied, although as Andrew Baker J noted the contrary was barely argued. The substantial argument was that the proceedings were a "civil and commercial matter" not a "revenue, customs or administrative matter" within Article 1(1) and that it was incompatible with the then Brussels Convention to apply Dicey Rule 3 to dismiss a claim." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
"These facts are in all material respects indistinguishable from those in Peter Buchanan Limited and Macharg v McVey [1954] IR 89 (also in [1955] AC 516), the leading authority on this aspect of indirect enforcement, an Irish decision approved by the House of Lords in Government of India v Taylor [1955] AC 491 - where Lord Keith of Avonholm described Kingsmill Moore J’s judgment as “admirable” and containing “an able and exhaustive examination of the authorities” - and again in In re State of Norway’s application (Nos 1 & 2) [1990] AC 723. The facts in Buchanan can conveniently be taken from Lord Keith’s summary of the case in Government of India v Taylor at page 510:
"The plaintiff company was a company registered in Scotland which had been put into liquidation by the revenue authorities in Scotland under a compulsory winding-up order in respect of a very large claim for excess profits tax and income tax. The liquidator was really a nominee of the revenue. ... The defendant having realised the whole assets of the company in his capacity as a director and having satisfied substantially the whole of the company’s indebtedness, other than that due to the revenue, by a variety of devices had the balance transferred to himself to his credit with an Irish bank and decamped to Ireland. The action was in form an action to recover this balance from the defendant at the instance of the company directed by the liquidator. ... The judge held that the transaction was a dishonest transaction designed to defeat the claim of the revenue in Scotland as a creditor ... On the other hand, he held that although the action was in form an action by the company to recover these assets it was in substance an attempt to enforce indirectly a claim to tax by the revenue authorities of another State. He accordingly dismissed the action."
There can be no distinction between the defendant’s sale of the company’s assets and his pocketing of the proceeds in Buchanan and the respondent’s sale of the companies’ assets and use of the proceeds to fund their purchase of his own shares in the present case. It can, therefore, equally be said of the appellants’ claim here as was said of the liquidator’s claim in Buchanan,
"that the whole object of the suit is to collect tax for a foreign revenue, and ... this will be the sole result of a decision in favour of the plaintiff." (QRS v Frandsen [1999] EWCA Civ 1463, Simon Brown LJ)
Public policy exceptions to the rule
"[146] Given the firm conclusion I have reached that Ground 1 should succeed because the claim against the alleged fraud defendants is not inadmissible by virtue of Dicey Rule 3, it is not necessary to reach any conclusion on SKAT's alternative case that, if the wider sovereign powers rule were otherwise applicable, the public policy exception to that rule should apply here. All that it is necessary to say is that, contrary to the argument on behalf of the alleged fraud defendants that Dicey Rule 3 is always absolute, it seems to me that the view expressed obiter by this Court in Iran that there is a public policy exception to the wider sovereign powers rule, is correct..." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Possibly in cases of major international fraud
"[146] Whilst not deciding the point, I can see much force in Lord Pannick QC's submission that the exception should apply here in a case of a major international fraud." (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
INTERNATIONAL AGREEMENTS
International agreements can override the rule
"[6] For centuries, courts in this jurisdiction have refused to entertain claims for the enforcement of revenue or other public laws of a foreign State (See, for example, Government of India v Taylor [1955] AC 491). The editors of Dicey, Morris & Collins, The Conflict of Laws (15th Ed.) state that this reflects a well-established and almost universal principle that the courts of one country will not enforce the penal and revenue laws of another country. The principle is, however, subject to contrary agreement by treaty and in recent years very substantial inroads have been made into the principle by international agreements. In 1988 the Council of Europe and OECD adopted a Joint Convention on Mutual Administrative Assistance in Tax Matters which included provision for assistance in recovery of taxes. Furthermore, since 2003 the OECD Model Conventions on Double Taxation have included provisions for mutual assistance in the collection of taxes." (Ben Nevis (Holdings) Limited v. HMRC [2013] EWCA Civ 578, Lloyd Jones LJ)
International agreement may permit collection of pre-existing tax liabilities
"[53] To my mind there is no unfairness in Article 25A permitting the enforcement of pre-existing tax liabilities. Prior to the amendment of the 2002 Convention and its implementation in this jurisdiction the Revenue Rule prohibited the enforcement of South African tax liabilities in the United Kingdom. However, that Rule was always liable to be abrogated by treaty and the taxpayer could have no legitimate expectation that the Rule would not be abrogated in the future." (Ben Nevis (Holdings) Limited v. HMRC [2013] EWCA Civ 578, Lloyd Jones LJ)
OECD Article 27
"1. The Contracting States shall lend assistance to each other in the collection of revenue claims. This assistance is not restricted by Articles 1 and 2. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of this Article.
2. The term "revenue claim" as used in this Article means an amount owed in respect of taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention or any other instrument to which the Contracting States are parties, as well as interest, administrative penalties and costs of collection or conservancy related to such amount.
3. When a revenue claim of a Contracting State is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of collection by the competent authority of the other Contracting State. That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.
4. When a revenue claim of a Contracting State is a claim in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other Contracting State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection.
5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 shall not, in that State, have any priority applicable to that revenue claim under the laws of the other Contracting State.
6. Proceedings with respect to the existence, validity or the amount of a revenue claim of a Contracting State shall not be brought before the courts or administrative bodies of the other Contracting State.
7. Where, at any time after a request has been made by a Contracting State under paragraph 3 or 4 and before the other Contracting State has collected and remitted the relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases to be
a) in the case of a request under paragraph 3, a revenue claim of the first-mentioned State that is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, or
b) in the case of a request under paragraph 4, a revenue claim of the first-mentioned State in respect of which that State may, under its laws, take measures of conservancy with a view to ensure its collection
the competent authority of the first-mentioned State shall promptly notify the competent authority of the other State of that fact and, at the option of the other State, the first-mentioned State shall either suspend or withdraw its request.
8. In no case shall the provisions of this Article be construed so as to impose on a Contracting State the obligation: a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; b) to carry out measures which would be contrary to public policy (ordre public); c) to provide assistance if the other Contracting State has not pursued all reasonable measures of collection or conservancy, as the case may be, available under its laws or administrative practice; d) to provide assistance in those cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the other Contracting State." (Model Treaty, Article 27 - introduced in January 2003)
- UK position
"[2.78] Assistance in Collection (AIC) agreements which allow tax authorities in other countries to collect debts on HMRC’s behalf are in place with a large number of jurisdictions around the world. An AIC article can be requested by the UK as part of double taxation agreements and almost always is requested with new agreements and with revisions to existing ones (although that is subject to negotiation and agreement with the other party). The various arrangements in place through multi-national bodies mean that coverage is extensive. The government is considering ways to make these AIC arrangements more widely known to act as a deterrent for those taxpayers who leave the country while owing tax to HMRC through focused communications and including, possibly, through HMRC officers located abroad. " (Preventing and collecting international tax debt – summary of responses (2022))
Multilateral Convention on Mutual Administrative Assistance in Tax Matters
List of participants
List of reservations
Terms
EU Directive on mutual assistance for the recovery of tax
"1. Council Directive 2010/24/EU (128) shall apply until 5 years after the end of the transition period between the Member States and the United Kingdom in respect of claims relating to amounts that became due before the end of the transition period, claims relating to transactions that took place before the end of the transition period but where the amounts became due after that period, and claims relating to transactions covered by Article 51(1) of this Agreement or movements of excise goods covered by Article 52 of this Agreement.
2. By way of derogation from Article 8, the United Kingdom shall have access, to the extent strictly necessary to exercise its rights and comply with obligations under this Article, to the networks, information systems and databases listed in Annex IV. The United Kingdom shall reimburse the Union for the actual costs incurred by the Union as a consequence of facilitating that access. The Union shall communicate to the United Kingdom the amount of those costs by 31 March of each year until the end of the period referred to in Annex IV. In the event that the communicated amount of the actual costs incurred considerably diverges from the best estimates amount that was communicated by the Union to the United Kingdom before the signature of this Agreement, the United Kingdom shall pay without delay to the Union the best estimates amount and the Joint Committee shall determine the manner in which the difference between the actual costs incurred and the best estimates amount is to be addressed." (EU/UK Withdrawal Agreement, Article 100)
- Enforcement to ensure full effectiveness of EU law
"[63] It is therefore necessary to reply to the second question for a preliminary ruling that, in the framework of the mutual assistance introduced pursuant to Directive 76/308, in order for the addressee of an instrument permitting enforcement to be placed in a position to enforce his rights, he must receive the notification of that instrument in an official language of the Member State in which the requested authority is situated. In order to ensure compliance with that right, it is for the national court to apply national law while taking care to ensure the full effectiveness of Community law." (Kyrian C-233/08)
- Not necessary that acts of applicant state must be capable of being challenged in requested state
"[45] Even though the acts taken by Member States pursuant to the system of mutual assistance established by Directive 2010/24 must be in accordance with the fundamental rights of the European Union, which include the right to an effective remedy enshrined in Article 47 of the Charter, it does not in any way follow that the acts of the applicant Member State must be capable of being challenged both before the courts of that Member State and before those of the requested Member State. On the contrary, that system of mutual assistance, as it is based, in particular, on the principle of mutual trust, increases legal certainty with regard to the determination of the Member State in which disputes are settled and thus makes it possible to avoid forum shopping (see, by analogy, judgment of 21 November 2011, N.S. and Others, C‑411/10 and C‑493/10, EU:C:2011:865, paragraph 79)." (Donnellan C-34/17)
- Refusal on grounds of public policy
"[49] That being said, it is for the Court to review the limits within which the authorities of a Member State may refuse, by reference to national views such as those relating to the public policy of that State, to grant their assistance to another Member State within the context of a system of cooperation established by the EU legislature (see, to that effect, judgments of 28 April 2009, Apostolides, C‑420/07, EU:C:2009:271, paragraphs 56 and 57, and of 25 May 2016, Meroni, C‑559/14, EU:C:2016:349, paragraphs 39 and 40)." (Donnellan C-34/17)
Double tax treaty mutual assistance does not necessarily apply to claims to recover refunds of tax
"[142] Furthermore, I agree with Lord Pannick QC that there is nothing in the US-Denmark DTA which entitles SKAT to recover the overpayments induced by fraud. Judge Kaplan dealt with the US-Denmark DTA in his Memorandum Opinion in the SKAT Litigation in New York saying that the DTA was irrelevant because SKAT's claims did not seek to collect tax owed by the defendants and covered by the DTA. " (Skatteforvaltningen v Solo Capital Partners [2022] EWCA Civ 234, Sir Julian Flaux)
Trustees may not be permitted to pay unenforceable foreign tax debts
"On that footing, we find it difficult to envisage any circumstances in which the trustee can be said to be acting bona fide if the trustee satisfies any claims which, on the authority of Government of India v Taylor [1955] AC 491, they are not obligated by law to satisfy. Nevertheless, we would not go so far as to say that no such circumstances could ever arise which would permit the trust company to claim an indemnity." (Bank of Nova Scotia Trust Company (Caribbean) Limited v. Helene Tremblay 1 ITELR 673)
PROTOCOL ON VAT
"(1) The arrangements contained in the Protocol have effect (and do so in spite of anything in any enactment).
(2) The Commissioners for Her Majesty's Revenue and Customs are the competent authority in the United Kingdom responsible for the application of the Protocol.
(3) A reference in any enactment to arrangements having effect by virtue of, or by virtue of an Order in Council under, section 173 of the Finance Act 2006 (international tax enforcement arrangements) includes a reference to arrangements having effect by virtue of this section.
(4) In this section “the Protocol” means—
(a) the protocol, contained in the Trade and Cooperation Agreement, on administrative co-operation and combating fraud in the field of Value Added Tax and on mutual assistance for the recovery of claims relating to taxes and duties, and
(b) any decision or recommendation adopted by the Specialised Committee in accordance with that protocol." (EU (Future Relationship) Act 2020, s.22)
"The objective of this Protocol is to establish the framework for administrative cooperation between the Member States and the United Kingdom, in order to enable their authorities to assist each other in ensuring compliance with VAT legislation and in protecting VAT revenue and in recovering claims relating to taxes and duties." (PVAT, Article 1)
Meaning of VAT
"(t) "VAT" means value added tax pursuant to Council Directive 2006/112/EC on the common system of value added tax for the Union and means value added tax pursuant to the Value Added Tax Act 1994 for the United Kingdom." (PVAT, Article 3)
Duty of requested authority to recover claim subject to an instrument
"(1) At the request of the applicant authority, the requested authority shall recover claims which are the subject of an instrument permitting enforcement in the State of the applicant authority." (PVAT, Article 25)
- Claims
"(1) This Protocol lays down rules and procedures for cooperation:
(a) to exchange any information that may help to effect a correct assessment of VAT, monitor the correct application of VAT, and combat VAT fraud; and
(b) for the recovery of:
(i) claims relating to VAT, customs duties and excise duties, levied by or on behalf of a State or its territorial or administrative subdivisions, excluding the local authorities, or on behalf of the Union;
(ii) administrative penalties, fines, fees and surcharges relating to the claims referred to in point (i) imposed by the administrative authorities that are competent to levy the taxes or duties concerned or carry out administrative enquiries with regard to them, or confirmed by administrative or judicial bodies at the request of those administrative authorities; and
(iii) interest and costs relating to the claims referred to in points (i) and (ii)." (PVAT, Article 2)
- Requirement for uniform instrument in correct form
"(1) Any request for recovery shall be accompanied by a uniform instrument permitting enforcement in the State of the requested authority.
This uniform instrument permitting enforcement shall reflect the substantial contents of the initial instrument permitting enforcement in the State of the applicant authority, and constitute the sole basis for recovery and precautionary measures in the State of the requested authority. No act of recognition, supplementing or replacement shall be required in that State.
The uniform instrument permitting enforcement shall contain at least the following information:
(a) information relevant to the identification of the initial instrument permitting enforcement, a description of the claim, including its nature, the period covered by the claim, any dates of relevance to the enforcement process, and the amount of the claim and its different components such as principal, interest accrued, etc.;
(b) name and other data relevant to the identification of the debtor; and
(c) name, address and other contact details regarding:
(i) the office responsible for the assessment of the claim; and
(ii) if different, the office where further information can be obtained concerning the claim or the possibilities for contesting the payment obligation." (PVAT, Article 27)
- Must exhaust local recovery first
"(2) Before the applicant authority makes a request for recovery, appropriate recovery procedures available in the State of the applicant authority shall be applied, except in the following situations:
(a) where it is obvious that there are no assets for recovery in that State or that such procedures will not result in the payment of a substantial amount, and the applicant authority has specific information indicating that the person concerned has assets in the State of the requested authority;
(b) where recourse to such procedures in the State of the applicant authority would give rise to disproportionate difficulty." (PVAT, Article 26)
- Amendment or withdrawal of request
"(1) The applicant authority shall inform the requested authority immediately of any subsequent amendment to its request for recovery or of the withdrawal of its request, indicating the reasons for amendment or withdrawal." (PVAT, Article 30)
- Refusal where applicant state did not notify T of demand and T no longer has effective remedy to challenge it
"[59] Consequently, in the case where a request for recovery is presented, even though the person concerned has not had the opportunity to raise the matter before the courts of the applicant Member State under conditions compatible with the fundamental right to an effective remedy, the rule laid down in Article 14(1) of Directive 210/24, as transposed into national law, cannot reasonably be invoked against that person.
[60] That is a fortiori so where, as in the present case, the applicant authority itself indicated, in the request for recovery, and therefore at a point in time earlier than that at which the person concerned became aware of the existence of the claim in question, that it was no longer possible to bring administrative or judicial proceedings in the applicant Member State with a view to contesting that claim. Although, admittedly, the Greek Government subsequently, in its observations before the Court, asserted the contrary, submitting that the possibility to bring proceedings was not extinguished following the expiry of the period for bringing an action triggered by the publication of that claim in the Official Journal of the Hellenic Republic, the person concerned cannot be criticised for having taken into consideration the information provided by the applicant authority in the request for recovery, information of which the person concerned, after becoming aware of the existence of that claim, had received a copy and which he had caused to be checked by an expert in Greek law, who confirmed it.
[61] It follows from the foregoing that an exceptional situation such as that at issue in the main proceedings in the present case, in which an authority of a Member State requests an authority of another Member State to recover a claim relating to a fine of which the person concerned was unaware, may legitimately lead to a refusal of assistance with the recovery by that latter authority. The assistance provided for in Directive 2010/24 is, as is indicated by the title and various recitals of that directive, described as ‘mutual’, which implies, in particular, that it is for the applicant authority to create, before it makes a request for recovery, the conditions under which the requested authority will be able to grant its assistance in a meaningful manner and in conformity with the fundamental principles of EU law." (Donnellan C-34/17)
Limitation period
- No obligation to assist five year time limit from date of claim or claim ceasing to be contested
"(3) The requested authority shall not be obliged to grant the assistance provided for in Article PVAT.20 and Articles PVAT.22 to PVAT.31 if the initial request for assistance pursuant to Article PVAT.20, PVAT.22, PVAT.23, PVAT.25 or PVAT.31 is made in respect of claims which are more than 5 years old, dating from the due date of the claim in the State of the applicant authority to the date of the initial request for assistance.
However, in cases where the claim or the initial instrument permitting enforcement in the State of the applicant authority is contested, the 5-year period shall be deemed to begin from the moment when it is established in the State of the applicant authority that the claim or the instrument permitting enforcement may no longer be contested." (PVAT, Article 30)
- Limitation periods governed solely by laws of applicant state
"(1) Questions concerning periods of limitation shall be governed solely by the laws in force in the State of the applicant authority" (PVAT, Article 30)
Contested claims
- No request for as long as claim is contested in applicant State
"(1) The applicant authority may not make a request for recovery if and as long as the claim or the instrument permitting its enforcement are contested in the State of the applicant authority, except in cases where the third subparagraph of Article PVAT.29(4) applies." (PVAT, Article 26)
- Disputes concerning the claim within exclusive competence of applicant State
"(1) Disputes concerning the claim, the initial instrument permitting enforcement in the State of the applicant authority or the uniform instrument permitting enforcement in the State of the requested authority and disputes concerning the validity of a notification made by an applicant authority shall fall within the competence of the competent bodies of the State of the applicant authority..." (PVAT, Article 29)
If claim is contested in requested State to inform party that action must be brought in applicant state
(1)...If, in the course of the recovery procedure, the claim, the initial instrument permitting enforcement in the State of the applicant authority or the uniform instrument permitting enforcement in the State of the requested authority is contested by an interested party, the requested authority shall inform that party that such an action must be brought by the latter before the competent body of the State of the applicant authority in accordance with the laws in force there." (PVAT, Article 29)
- Applicant state to inform requested state if action brought contesting claim, and extent to which claim not contested
"(3) Where an action as referred to in paragraph 1 has been brought, the applicant authority shall inform the requested authority thereof and shall indicate the extent to which the claim is not contested." (PVAT, Article 26)
- Suspension of enforcement where requested State informed claim is contested
"(4) As soon as the requested authority has received the information referred to in paragraph 3, either from the applicant authority or from the interested party, it shall suspend the enforcement procedure, as far as the contested part of the claim is concerned, pending the decision of the body competent in the matter, unless the applicant authority requests otherwise in accordance with the third subparagraph of this paragraph." (PVAT, Article 29)
- Unless applicant State asks requested State to recover contested claim insofar as law allow
"(4)...The applicant authority may, in accordance with the laws, regulations and administrative practices in force in its State, ask the requested authority to recover a contested claim or the contested part of a claim, in so far as the laws, regulations and administrative practices in force in the State of the requested authority allow. Any such request shall be reasoned. If the result of contestation is subsequently favourable to the debtor, the applicant authority shall be liable for reimbursing any sums recovered, together with any compensation due, in accordance with the laws in force in the State of the requested authority." (PVAT, Article 29)
Pre-cautionary measures where enforcement suspended
- At the request of enforcement applicant State or where deemed to be necessary
"(4) ...At the request of the applicant authority, or where otherwise deemed to be necessary by the requested authority, and without prejudice to Article PVAT.31, the requested authority may take precautionary measures to guarantee recovery in so far as the applicable laws or regulations allow." (PVAT, Article 29)
- Independently of a request for enforcement
"(1) At the request of the applicant authority, the requested authority shall take precautionary measures, if allowed by its national law and in accordance with its administrative practices, to ensure recovery where a claim or the instrument permitting enforcement in the State of the applicant authority is contested at the time when the request is made, or where the claim is not yet the subject of an instrument permitting enforcement in the State of the applicant authority, in so far as precautionary measures are possible in a similar situation under the law and administrative practices of the State of the applicant authority.
The document drawn up for permitting precautionary measures in the State of the applicant authority and relating to the claim for which mutual assistance is requested, if any, shall be attached to the request for precautionary measures in the State of the requested authority. This document shall not be subject to any act of recognition, supplementing or replacement in the State of the requested authority" (PVAT, Article 29)
Enforcement
- Treat claim as if it was a claim of the requested State for the purposes of recovery
"(1) For the purpose of the recovery in the State of the requested authority, any claim in respect of which a request for recovery has been made shall be treated as if it was a claim of that State, except where otherwise provided for in this Protocol. The requested authority shall make use of the powers and procedures provided under the laws, regulations or administrative provisions of that State applying to its claims except where otherwise provided for in this Protocol.
The State of the requested authority shall not be obliged to grant to claims whose recovery is requested preferences accorded to similar claims arising in the State of the requested authority, except where otherwise agreed or provided under the law of that State.
The State of the requested authority shall recover the claim in its own currency." (PVAT, Article 26)
"[31] As regards the measures taken by the requested Member State for the purposes of recovery, in that Member State, of a claim which is the subject of a recovery request, the requested authority must, in accordance with Article 13(1) of Directive 2010/24, make use of the competences and procedures provided under the laws, regulations or administrative provisions of that Member State since any claims which are the subject of such a request is, except where otherwise provided for in that directive, to be treated as a claim of the requested Member State." (Metirato Oy C-695/17)
- Enforcement measures governed by legislation in requested state
"[37] Therefore, it is clear from the provisions of Directive 2010/24 that, first, enforcement measures adopted by the requested Member State are governed by the legislation applicable in that Member State and, second, that disputes concerning those measures must be brought before the competent court of the requested Member State which must examine them in the light of the provisions of its national law." (Metirato Oy C-695/17)
- Requested state is defendant to any challenge to validity of enforcement measures
"[39] Therefore, as the Advocate General observed, in substance, in points 45 to 47 of his Opinion, it is apparent from the general scheme and purpose of Directive 2010/24 that an action, such as that in the main proceedings, contesting, before the competent body of the requested Member State, the validity, in the light of the law of that Member State, of an enforcement procedure for recovery brought, in accordance with that law, by the authorities of that Member State in order to recover, pursuant to that directive, claims of the applicant Member State, must be brought against the requested Member State, even if such a dispute forms part of a procedure for the restitution of assets to the insolvency estate of a company established in that Member State." (Metirato Oy C-695/17)
- Power to allow time to pay
"(4) The requested authority may, where the applicable laws, regulations or administrative provisions so permit, allow the debtor time to pay or authorise payment by instalment and it may charge interest in that respect. It shall inform the applicant authority of any such decision." (PVAT, Article 26)
- Disputes concerned enforcement to be raised in requested State
"(2) Disputes concerning enforcement measures taken in the State of the requested authority or concerning the validity of a notification made by an authority of the requested State shall be brought before the competent body of that State in accordance with its laws and regulations." (PVAT, Article 29)
- Division of powers
"[34] That division of powers results from the fact that the claim and the instrument permitting enforcement are established on the basis of the law in force in the Member State in which the applicant authority is situated, whilst, for enforcement measures in the Member State in which the requested authority is situated, the latter applies according to its national law (see, as regards Directive 76/308, judgment of 14 January 2010, Kyrian, C‑233/08, EU:C:2010:11, paragraph 40)." (Metirato Oy C-695/17)
- Based on which State best placed to interpret the relevant law
"[35] Thus, pursuant to Article 14(1) of Directive 2010/24, any dispute of that claim, initial instrument permitting enforcement in the applicant Member State, uniform instrument permitting enforcement in the requested Member State or notification made by a competent authority of the applicant Member State must be brought before the competent bodies of that Member State and not before those of the requested Member State, whose power of review is expressly limited by Article 14(2) to acts of the requested Member State (judgment of 26 April 2018, Donnellan, C‑34/17, EU:C:2018:282, paragraphs 43 and 44).
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[36] On the other hand, where it is the enforcement measures taken in the Member State in which the requested authority is situated or the validity of a notification given by the requesting authority that is being contested, the action is to be brought before the competent body of that Member State in accordance with its laws and regulations, that body being the best placed to interpret its national law and to determine whether an act is lawful on the basis of that law (see, as regards as regards Directive 76/308, judgment of 14 January 2010, Kyrian, C‑233/08, EU:C:2010:11, paragraphs 39, 40 and 49)." (Metirato Oy C-695/17)
- Argument that payment was unlawful preference of creditor to be brought in requested State
"[26] In so far as that forced recovery procedure was brought in order to enforce a request for recovery addressed to the Finnish authorities by the Estonian authorities, pursuant to Directive 2010/24, it constitutes an enforcement measure taken in the requested Member State, within the meaning of Article 14(2) thereof.
[27] Therefore, according to that provision, a dispute seeking to challenge the conduct and outcome of those proceedings, such as that at issue in the main proceedings, is a dispute concerning an enforcement measure taken in the requested Member State and must be brought before the competent court of that Member State, in the present case, the Republic of Finland, in accordance with the applicable laws and regulations." (Metirato Oy C-695/17)