The CJEU delivered judgment in the Littlewoods VAT case yesterday. The Case concerns the availability of compound interest on claims for the recovery of VAT levied by HMRC in breach of EU law. In UK law, interest is restricted by s.78 VATA 1994 to simple interest. The question for the CJEU was: does simple interest provide the taxpayer with an effective remedy for the purposes of EU law?
The CJEU has held, first, that it is up to Member States to determine the conditions for the payment of interest: “particularly the rate of that interest and its method of calculation (simple or ‘compound’ interest)”, provided that the EU principles of effectiveness and equivalence are not infringed. Thus, the rules laid down by the domestic legal system to safeguard rights in relation to national charges levied in breach of EU law must not be less favourable than those governing similar domestic actions (the principle of equivalence) and, second, they must not render practically impossible or excessively difficult the exercise of rights conferred by EU law (the principle of effectiveness).
The case will now return to the UK for the High Court to interpret and apply the CJEU’s judgment.