Judgment was delivered by Henderson J in the High Court on 2 March in Investment Trust Companies (“ITCs”) (In Liquidation) v The Commissioners for Her Majesty’s Revenue & Customs [2012] EWHC 458 (Ch). It concerns the issue of how a final consumer can recover VAT passed on to it which was unlawfully charged upon the supplier. National systems do not usually provide the final consumer with a method to recover the VAT directly. The ECJ has already encountered this problem in C-35/05 Reemtsma, C- 94/10 Danfoss and a related issue in C-427/10 Banca Antoniana.

The Claimants were investment trusts receiving services from management companies (“the Managers”) for which they paid a fee plus VAT. In general terms, the Managers accounted for VAT on its returns and the net difference was then paid to HMRC. Following the Claverhouse litigation, these supplies should have been exempt and the managers submitted Section 80 claims to HMRC, subject to the three year limitation period. Following the Fleming litigation, the Managers made further claims for periods prior to the introduction of the three year limitation period. HMRC were only liable to repay the net amount so the ITCs, as the final consumer, would be prevented from recovering the full VAT.

The Court held that the offsetting of the unlawful VAT against the Managers’ input VAT was irrelevant: HMRC still received the full benefit of the unlawful tax. To consider whether the Claimants had any enforceable EU rights, the principles in Danfoss were applied. If the final consumer is able, they should first reclaim from the Managers who would then obtain reimbursement from the tax authorities. This imposes an obligation on the Managers to recover the unlawful sums otherwise they face civil actions from theirs customers. However, if the Managers are unable to make a claim, as it is impossible or excessively difficult to do so (e.g. if insolvent/dissolved), observance of the principle of effectiveness requires the final consumer to bring its claim directly against the tax authorities. Danfoss identified the purpose of the San Giorgio principle as being to help neutralise the economic burden which the unlawful tax has imposed on the person who had actually borne it, the final consumer. In principle it was decided that the Claimants did indeed have EU rights that they are entitled to rely upon against HMRC. The issue of how English Law would provide a remedy for these rights in these San Giorgio claims was not decided and the debate continues as judgment was deferred until after the ECJ judgment in Littlewoods as well as the Supreme Court decision in FII.