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The Supreme Court has provided a valuable discussion of the differences between the principle and tests of proportionality in ECHR and EU law.

The case concerned a EU law challenge brought by barristers to the UK’s Quality Assurance Scheme for Advocates (QASA), which required criminal barristers to be judicially assessed before they may accept certain categories of cases. The appellants sought judicial review of the bringing into effect of QASA, alleging that it was contrary to the Provision of Services Regulations 2009. This SI (and the Directive it implemented, 2006/123/EC) stated that authorisations schemes had to satisfy two conditions: the need was justified by an overriding reason relating to the public interest, and the objective pursued could not be attained by a less restrictive measure.

The Supreme Court held as follows:

• EU proportionality was different from ECHR proportionality. The latter involved a four-stage analysis explained in Bank Mellat v Her Majesty’s Treasury (No 2) [2013] UKSC 39 (in brief, importance of the objective, rationality, availability of a less intrusive alternative and proportionality). This analysis was not applicable to proportionality in EU law.
• By contrast, EU proportionality was now enshrined in Article 5(4) of the Treaty on European Union: “Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties”.
• In EU law proportionality may arise in a number of circumstances, principally:
  • as a ground of review of EU measures themselves (i.e. in cases before the CJEU). Here, a court would only intervene if it considered the measure manifestly inappropriate having regard to the objective pursued.
  • in reviews of national measures relying on derogations from general EU rights (mainly fundamental freedoms), where proportionality functioned as a means of preventing disguised discrimination and unnecessary barriers to market integration, and was therefore applied more strictly. Here, the measures should be applied in a non-discriminatory manner, be justified by imperative requirements in the general interest, be suitable for the objective pursued, and not go beyond what was necessary to attain it.
  • in reviews of national measures which did not threaten the integration of the internal market, e.g. because the subject-matter was within an area of national rather than EU competence, a less strict approach was generally adopted. Here, the test was the “manifestly inappropriate” one above.
• In the present case, the question was whether the Legal Services Board had established that the objectives pursued by the scheme (namely the protection of recipients of the services and the sound administration of justice) could not be attained by means of a less restrictive scheme. On that basis, the Board’s bringing into force of the QASA was proportionate.

R (on the application of Lumsdon) v Legal Services Board [2015] UKSC 41, 24 June 2015

The ECJ has given its judgment in a case concerning the fulfilment of obligations entailed by Community transit procedures. Community transit is a customs procedure allowing the movement of goods that are not in free circulation, i.e., non-EU goods that have not been cleared into the EU, between two points in the EU under suspension of customs duties.

DSV, a Danish transport and logistics undertaking, initiated external Community transit procedures for some goods from Copenhagen (Denmark) to Jönköping (Sweden). The goods were not accepted by the consignee in Jönköping and were then returned to Copenhagen, without having been presented to either the Jönköping or Copenhagen customs offices. DSV argued that the goods were included in a later transit procedure which was correctly discharged, whereas the Danish authorities disputed this. The Danish authorities sought to establish that DSV had incurred a customs debt under Article 203 or, in the alternative, Article 204 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code, as amended, (the “Customs Code”) and denied DSV the right to deduct the import VAT it had to pay on the goods.

The Court ruled that if it could not be established that the two transit procedures concerned the same goods, then a customs debt is incurred under Article 203, because the goods would be regarded as removed from customs supervision, having never been presented to the customs authority. If on the other hand, the two transit procedures did concern the same goods, the mere fact that the goods were not presented to either the customs office of destination or at origin as part of the first transit procedure is insufficient to constitute removal from customs supervision if it is established that the same goods were subsequently transported again to their destination under a second, correctly discharged transit procedure. Accordingly no customs debt would be incurred under Article 203 and Article 204 would need to be considered instead.

Article 204 concerns customs debts incurred through the failure to fulfil obligations generated by transit procedures. The relevant question regarding Article 204 was whether the late presentation of the goods at the customs office constituted an omission leading to a customs debt being incurred. The Court ruled that it did on the basis of its previous case-law. The instant case was also distinguishable from situations where an authorised consignor had, by mistake, generated two external transit procedures for one and the same consignment of goods – in any event DSV, did not make the dispatches as authorised consignor – or where the goods at issue were never transported under the first transit procedure. However, it was also necessary to consider Article 356(3) of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implantation of Council Regulation (EEC) No 2913/92, as amended, (the “Implementing Regulation”), which provides that a carrier or principal is deemed to have complied with the prescribed time limit where the failure to comply is explained to the satisfaction of the customs office of destination and which is beyond the carrier’s or principal’s control. It was for the referring court to ascertain whether this was the case. Alternatively, the negative conditions in Article 204 of the Customs Code exclude a customs debt being incurred where the “failures have no significant effect on the correct operation of the temporary storage or customs procedure in question”. Article 859 of the Implementing Regulation gives an exhaustive list of the situations likely to satisfy that condition. Again, this is a matter for the referring court. Of particular interest in these proceedings were the requirement that there should not be obvious negligence and that the goods should be presented at the destination office within a reasonable time.

Lastly, the Court ruled that Article 168(e) of the VAT Directive did not preclude national legislation excluding the deduction of import VAT by the carrier of goods who is neither the importer nor owner of the goods in question.

Case C‑187/14 Skatteministeriet v DSV Road A/S (Danske Speditører), 25 June 2015

The Court of Appeal has offered useful guidance on the issues-based approach to costs orders and on determining the joint liability of partnerships.

The claimant brought a claim against a property partnership. One of the two partners had acted in breach of his fiduciary duties. The question was whether both partners were jointly and severally liable in respect of the partner’s breach of fiduciary duties. The claimant had also brought a negligence claim.

The Court of Appeal found joint and several liability and ruled as follows:

• Following Dubai Aluminium Co Limited v Salaam & Ors [2003] 2 AC 366, authority was not the touchstone for partnership liability. The touchstone was the connection between the wrongful conduct and the acts the partner was authorised to do, and in particular whether the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the business of the partnership. As the partner in breach of fiduciary duties had been carrying out the work for which the partnership had been contracted, he had been acting in the course of the partnership’s business. However, the negligence claim against the partnership failed.
• The judge had adopted an issues-based approach to costs. However, this approach did not achieve a fair balance between the claimant’s overall success and its failure on the negligence issue. The starting point should be that the successful party was entitled to its costs, and success was generally indicated by which party had to pay money to the other. In all the circumstances, the justice of the case was met by an award to the claimant of 50% of its costs of the action and the appeal, to be borne jointly and severally by the defendants.

The Northampton Regional Livestock Centre Company Ltd v Cowling and another [2015] EWCA Civ 651, 30 June 2015

The EU Commission has recently launched a European-wide study on the service of documents in EU Member States.

The study is being carried out by a consortium led by the University of Florence, the University of Uppsala and DMI, a French consulting firm. The Commission is particularly interested in understanding the existing disparities between the national regimes on service of documents that might constitute an obstacle to the proper functioning of Regulation 1393/2007 on the service of documents. The focus of the study is on domestic service of documents.

Those who wish to participate can answer an online questionnaire or download a copy.

The Supreme Court has held that under the UK/US Double Taxation Convention a US resident was entitled to double taxation relief on income he remitted to the UK from the US.

The question was whether the UK tax was “computed by reference to the same profits or income by reference to which the United States tax is computed”. During the relevant period the appellant was a member of a Delaware limited liability company (“the LLC”), classified as a partnership for US tax purposes, and was liable to US federal and state taxes on his share of the profits. He remitted the balance to the UK and was liable to UK income tax on the amounts remitted as “income arising from possessions outside the UK”, subject to any double taxation relief. The respondents decided that he was not entitled to double taxation relief as the income taxed in the US was not his own, but that of the LLC.

The Supreme Court unanimously held for the appellant as follows:

• Under the Convention it was necessary to identify the profits or income by reference to which the taxpayer’s UK tax liability was computed, primarily a question of UK tax law. Next one should identify the profits or income from sources within the US on which US tax was payable under the laws of the US and in accordance with the Convention. That was primarily a question of US tax law. Then it was necessary to compare the profits or income in each case and decide whether they were the same.
• The members of the LLC had an interest in the profits of the LLC as they arose. The appellant was therefore entitled to the share of the profits allocated to him, rather than receiving a transfer of profits previously vested in the LLC. Consequently, his “income arising” in the US was his share of the profits. That was the income liable to tax under UK law, to the extent that it was remitted to the UK. The appellant’s liability to UK tax was therefore computed by reference to the same income as was taxed in the US. Accordingly he qualified for double taxation relief.

Anson v Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44, 1 July 2015

An Implementing Regulation on the functionality of the online dispute resolution platform for consumer disputes has been published in the Official Journal.

By way of background, Regulation (EU) No 524/2013 provides for the establishment of an online dispute resolution platform at EU level. The ODR platform is intended to take the form of an interactive and multilingual website. This would provide a single point of entry to consumers and traders seeking to resolve out-of-court disputes concerning contractual obligations stemming from online sales and service contracts.

The newly published Implementing Regulation clarifies the modalities for the exercise of the functions of the ODR platform, the modalities of the electronic complaint form and the modalities of the cooperation between ODR contact points in the Member States.

Commission Implementing Regulation (EU) 2015/1051 of 1 July 2015

Last week the Supreme Court handed down judgment in Anson (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) [2015] UKSC 44. Anson was a member of a Limited Liability Company (“the LLC”) established in Delaware and paid US Federal and state taxes on the profits he received as a member of the LLC. Anson then remitted the balance of the profits after US tax to the UK. HMRC decided that he was liable to UK income tax, denying his claim to double taxation relief (“DTR”) on the basis that the profits taxed in the US were not his income but that of the LLC. The Supreme Court has now decided this was a violation of article 23(2)(a) of the UK-US Double Taxation Convention 1975 (prohibition of double taxation).

The First Tax Tribunal (“FTT”) had previously looked at the LLC agreement and its governing act and found that the profits of the LLC belonged to the members as they arose. The income had therefore belonged to Anson when it was taxed in the US and Anson was being taxed on the same income in the UK.

The Upper Tribunal reversed the decision of the FTT on the basis that the FTT had found a proprietary interest which was not evident on the facts. According to the Upper Tribunal, in the absence of such a right the profits were owned by the LLC and so Anson was not entitled to any DTR in the UK. The Court of Appeal upheld the Upper Tribunal’s decision but for different reasons, applying Memec plc v Inland Revenue to determine the source of the profits.

The Supreme Court has now agreed with the conclusions of the FTT, rejecting the Court of Appeal’s interpretation of Memec and the findings of the Upper Tribunal.

This article appears in the JHA July 2015 Tax Newsletter, which also features:

1. Summer Budget 2015 by Katy Howard
2. ITC v HMRC: Decision on Permission to Appeal
3. Supreme Court judgment in Rank: VAT on Gaming Machines by Katy Howard

A correlation table regarding the Rules of Procedure of the EU General Court has been published in the Official Journal.

The table indicates, in relation to each Article, paragraph or subparagraph of the Rules of Procedure of the General Court of 2 May 1991, as last amended on 19 June 2013, the corresponding Article and, where appropriate, paragraph of the Rules of Procedure of the General Court of 4 March 2015, which entered into force on 1 July 2015 (OJ L 105, 23.4.2015, p. 1).

Rules of Procedure of the General Court — Correlation table, OJ C 215/6, 1 July 2015

The Supreme Court has today granted permission to appeal the Court of Appeal judgment in Investment Trust Companies (in liquidation) v Commissioners for HMRC. As discussed in our March 2015 newsletter, the Court of Appeal had previously found that investment trust companies could recover some unlawfully paid VAT from HMRC. A hearing of the ITC case in the Supreme Court should be expected in late 2016 with judgment in early 2017.

This article appears in the JHA July 2015 Tax Newsletter, which also features:

1. Summer Budget 2015 by Katy Howard
2. Supreme Court judgment in Rank: VAT on Gaming Machines by Katy Howard
3. Anson v HMRC – Double Taxation Relief by Christopher Boughton

The Supreme Court has handed down its judgment in Commissioners for Her Majesty’s Revenue and Customs (Respondent) v The Rank Group Plc (Appellant) [2015] UKSC 48. This case has a long and complex procedural history. The remaining question was whether, during the period 1 October 2002 to 5 December 2005, the takings on a particular category of gaming machines operated by Rank were subject to VAT or exempt. Rank had argued that the difference in treatment between takings from the disputed machines, assuming they were exempt, and other similar machines which were taxable infringed the EU law principle of fiscal neutrality.

With effect from 6 December 2005 the legislation is said to leave no doubt that takings from the disputed machines are taxable from that date. However, prior to that, one of the conditions that rendered the takings from a gaming taxable was that “the element of chance in the game is provided by means of the machine”. In the case of Rank’s machines the element of chance in the disputed machines was provided by a detached random number generator (“RNG”) that was used by several machines.

The Court has dismissed Rank’s appeal. The relevant phrase was “the element of chance in the game is provided by means of the machine”. The element of chance was provided by the player’s action in pressing the button or pulling the lever which interrupted the RNG’s pre-programmed sequence of numbers at a particular moment. The RNG, while a necessary part of the process, responded in an entirely automatic way. It was therefore a fair use of language and consistent with the apparent policy of the legislation to describe the element of chance as provided “by means of” the terminal and not the RNG.

This article appears in the JHA July 2015 Tax Newsletter, which also features:

1. Summer Budget 2015 by Katy Howard
2. ITC v HMRC: Decision on Permission to Appeal
3. Anson v HMRC – Double Taxation Relief by Christopher Boughton