European Union Tax: AG suggests U.K. law on VAT refunds to non-EU traders is effective

European Court of Justice (ECJ) Advocate General Jääskinen issued his opinion on 20 May 2010 in European Commission v. United Kingdom of Great Britain and Northern Ireland, suggesting that revised U.K. law on the refund of VAT paid by businesses established outside the European Union did not infringe EU law.

The European Commission referred the U.K. to the ECJ in 2008, following its refusal to amend its domestic legislation concerning the refund of VAT paid by businesses established outside the EU. This followed a change to the U.K.'s domestic law in 2004 to limit the ability for overseas businesses to recover VAT relating to supplies that would be exempt if made in the U.K., prompted by the findings of the U.K. Court of Appeal in the WHA Limited and Viscount Reinsurance Company Limited case that U.K. law did not properly reflect the EU 13th Directive (the directive that enables businesses not established in the European Union to recover VAT on business expenditure incurred in EU Member States). The Commission disagreed with the change and, since the U.K. refused to amend its domestic law, referred the matter to the European Court of Justice.

Advocate General Jääskinen does not consider that the revised U.K. law infringes EU law and he has recommended that the ECJ dismiss the Commission's action. AG Jääskinen preferred to abide by the unambiguous text of the relevant EU Directive, rather than adopt the reading of the law proposed by the Commission.