Channel Islands to challenge Treasury on closure of offshore tax loophole
The Channel Islands is to challenge the Treasury’s decision to bring to an end a tax loophole used by major retailers to avoid VAT charges when bringing low value goods into the UK.
Jersey and Guernsey will begin an application for judicial review of the change at the High Court today. Lawyers for the areas have claimed that preventing retailers from taking advantage of low value consignment relief (LVCR) will be a “catastrophe” for the islands, according to press reports. The relief will no longer apply to imports from the Channel Islands as of 1 April.
The Guardian newspaper reported that the VAT-exempt arrangements, which are used in many cases to sell CDs and DVDs online, are worth “hundreds of millions of pounds”. Companies including Amazon, Play.com, Tesco and HMV despatch goods from the islands.
Lawyers will argue that the change would result in “severe consequences and hardship for Jersey as a whole”, and impact on transport and postal services as well as the retailers, the newspaper said.
EU member states can use LVCR to save on the administrative costs of collecting VAT on shipments of low value from outside the EU. The UK Government reduced the threshold below which items could be imported to the UK free of VAT to £15 from £18 from 1 November 2011. LVCR will continue to apply at the new threshold to commercial supplies from other non-EU jurisdictions.
Announcing the islands’ legal action at the end of last year Senator Alan MacLean, Jersey’s Minister for Economic Development, said the decision to do so had been “carefully weighed”.
“Having received advice from legal specialists in this area informing us that we have a strong case, I am satisfied that we are right to take these initial steps. Together with the States of Guernsey, we have a duty to protect the interests of the Islands and to that end we will be seeking clarity in the courts in order to help us make well-informed long-term decisions for the future benefit of Islanders,” he said.
The Government announced that it was exploring options to “limit the scope” of LVCR in the 2011 Budget (104-page / 1.1MB PDF) in order to prevent the relief being “exploited for a purpose it was not intended for”. The cost of the relief to the Exchequer has increased dramatically in recent years and is now around £140 million annually, according to the most recent Government figures.
Kevin Buckle, owner of Edinburgh independent record store Avalanche, said that the Channel Islands’ legal action was “hypocritical”.
“All these years their governments have said that this was not a big deal – now all of a sudden it’s a huge deal, and hundreds of jobs will be lost if the Treasury closes this loophole,” Buckle told Out-Law.com.
Last month Simon Fox, chief executive of music retailer HMV, warned in an interview with video game magazine MCV that because the Treasury’s change only affects imports from the Channel Islands, companies could easily move to other tax havens, such as Switzerland, to avoid the new charges.
“It can’t be helpful to have your VAT rate as a determinant of where you put your warehouse. It’s a basic distortion to fair competition. The closing of LVCR rules is a good thing, but the way it has been implemented doesn’t necessarily solve anything,” he said.
