May 21, 2015
Weil has secured a landmark victory for the Littlewoods retail group in its long-running dispute with HMRC in relation to the payment of compound interest on overpaid VAT.
In a judgment handed down today, the Court of Appeal has dismissed in its entirety an appeal brought by HMRC against a ground-breaking High Court judgment which confirmed Littlewoods’ right to claim compound interest in respect of overpaid VAT. The High Court judgment, given by Mr. Justice Henderson on March 28, 2014, held that Littlewoods’ claims, worth approximately £1.25 billion, “succeed in full.” It remains one of the largest money judgments (if not the largest money judgment) ever handed down by the English courts.
The Court of Appeal panel, comprised of Lady Justice Arden, Lord Justice Patten and Lord Justice Floyd, has unanimously held that the conclusions reached by Mr. Justice Henderson were entirely correct. In reaching this decision, the Court of Appeal was “not persuaded that Henderson J fell into any error on any of the issues.”
Today’s judgment is a significant development in one of the most important tax-related cases of the modern era. It confirms that, in certain circumstances where VAT has been overpaid, taxpayers are “entitled to reimbursement of the losses constituted by the unavailability” of the overpaid tax. In Littlewoods’ case, the Court of Appeal has upheld Mr. Justice Henderson’s finding that this requires Littlewoods to be awarded an amount equal to “the objective use value of the overpaid tax, which is properly reflected in an award of compound interest,” being approximately £1.25 billion.
The Weil team was led by litigation partner Jamie Maples, assisted by tax counsel Oliver Walker, litigation associates Christopher Marks and Timothy Goldfarb and legal executive Christine Howard. Weil has acted for Littlewoods in connection with the proceedings since 2009.
Mr. Maples commented that: “The Court of Appeal judgment is another welcome victory for Littlewoods and taxpayers generally. Consistent with basic economics, it confirms again the fundamental principles that taxpayers who overpay tax should be properly reimbursed for the loss of use of that money over time and the Government should not benefit from the use of what would otherwise amount to a massive interest-free loan at the expense of taxpayers.”
Weil instructed Laurence Rabinowitz QC, Steven Elliott and Maximilian Schlote (all of One Essex Court) and Michael Jones (Gray’s Inn Tax Chambers).
The claims relate to overpayments of VAT made by Littlewoods (and other companies) 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 equated to a fraction of the actual benefit which the Government derived from retaining the overpaid VAT over a 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. In May 2010, Mr. Justice Vos (as he then was) delivered a judgment in which he rejected a right to compound interest under English law. However, as VAT is an invention of EU legislation, he referred the case to the European Court of Justice (the CJEU). The CJEU delivered its judgment in July 2012, confirming 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.”
Following the CJEU’s judgment, the case was referred back to the High Court. The resumed trial was heard before Mr. Justice Henderson over 13 days in October and November 2013. In his judgment handed down on March 28, 2014, Mr. Justice Henderson concluded that the EU law requirement for Littlewoods to receive an adequate indemnity for the loss occasioned by its overpayments of VAT necessitated, as a matter of English law, an award of compound interest.