News & Announcements

Landmark ECJ Ruling on Compound Interest Affecting Hundreds of Taxpayer Claims

The European Court of Justice (the CJEU) has today published its decision in Littlewoods v HMRC: the lead case in relation to compound interest on VAT claims. It was hoped that the decision would establish whether, as a matter of EU law, taxpayers who have overpaid VAT are entitled to receive from HMRC not only a repayment of the VAT itself, but also compound interest (or something similar) on that sum.

Littlewoods is represented by Weil, Gotshal & Manges. The litigation team is being led by Jamie Maples, litigation partner, and Oliver Walker, tax associate.

Jamie Maples said: “In its decision today, the CJEU has said that EU law requires the payment of interest on overpaid VAT to constitute ‘an adequate indemnity for the loss occasioned through the undue payment of VAT.’ While it will be for the national court to decide whether this test requires the payment of compound rather than simple interest, taxpayers will welcome the ruling, as basic economics dictates that simple interest does not reflect the loss of the use of money over time.”

Background

The claim for compound interest stems from the overpayment by Littlewoods (and other companies) of VAT between 1973 and 2004. The overpaid VAT was repaid by HMRC at various points between 2005 and 2008, together with simple interest.

However, the simple interest equates to a fraction of the actual benefit which the Government derived from retaining the overpaid VAT over the 31-year period. As such, Littlewoods made a restitutionary claim in the English courts seeking a remedy which is commensurate with the benefits obtained by the Government by unlawfully collecting the VAT.

The case was first heard by the High Court in April 2010 and in May 2010, Vos J delivered his decision in which he rejected a right to compound interest under English law. However, as VAT is an invention of EU legislation and therefore the case involves a possible breach of EU law, he referred the case to the CJEU. In essence, the CJEU was asked, where a taxpayer has overpaid VAT, does a remedy constituting the repayment of the VAT plus simple accord with EU law, or should tax authorities be required to pay compound interest, or something similar.

Legalese