Jersey and Guernsey lose VAT case against UK Treasury

Legal challenges against the scrapping of a tax loophole that allowed the Channel Islands to sell DVDs and CDs VAT-free have failed.

Jersey and Guernsey lost their cases after three days in the High Court to try to stop the UK Treasury ending Low Value Consignment Relief (LVCR).

Mr Justice Mitting ordered the islands to pay half the UK government's legal costs.

Both island governments said they were considering an appeal.

Giving Channel Island ministers permission to challenge his ruling, the judge said the EU was a "complex organism" and the case covered a "difficult area".

He said lawyers had raised issues of "great importance" which merited the "consideration of a higher court".

UK Government lawyers said ministers would "go ahead with legislation as planned".

During the case the Channel Islands argued that the UK government could not lawfully allow an exemption on the importation of goods "from every country in the world outside the EU - except for Guernsey and Jersey".

'Uneven playing field'

Mr Justice Mitting said there was no legal "requirement" that the UK government should treat one territory "the same as another".

The judge was told that the trade was worth hundreds of millions of pounds a year.

He heard that about 700 "directly employed" and about 800 "indirectly affected" workers in Jersey and about 600 workers in Guernsey could lose jobs.

He said there was no evidence of "abuse" and told the court that Channel Island traders were doing "no more or less" than "exploiting fiscal advantage".

But the judge said the "nub" of the case was whether the UK government was legally "entitled" to apply the exemption "selectively".

He concluded that it was and said government ministers had won the argument "handsomely".

The Jersey and Guernsey governments said in court the decision would have a "significant impact" on their economies.

Jersey's Economic Development Minister Senator Alan Maclean said he was disappointed.

He said: "The changes, which are targeted against the Channel Islands alone, create an uneven playing field.

"We know that some businesses will find it difficult to compete under these circumstances and, as such, jobs are likely to be lost."

He said about 1,600 people were employed in the industry across the Channel Islands.

Unfair loophole

The UK government will end the tax relief to the Channel Islands from the start of April.

Richard Allen, from campaign group Retailers Against VAT Avoidance Schemes, said the UK government should have acted earlier to stop it.

He said: "I think politicians in the Channel Islands should be seriously looking at how they allowed this to occur knowing what the outcome would be."

The exemption under EU law has led to the growth in the past decade of a multimillion-pound business in which low-value items are ordered over the internet by UK customers.

It currently applies to goods purchased outside the EU for less than £15 such as CDs and DVDs.

UK retailers have condemned the waiver, in the case of the Channel Islands, as an unfair loophole which is costing them trade and jobs.