Jeremy Woolf and Barbara Belgrano look at how Brexit affects the UK tax position and consider some of the issues which will be ongoing, at least in the near future.

(3:08) Where we are today: you have to consider which period your case falls within. There are three periods to consider: (1) 2018 up to IP Completion Day being 31st December 2020 (2) 1 January 2021 - 31st December 2023 (3) 1st January 2024 onwards.

The first period: up to IP Completion Day on 31st December 2020

• (4:42) The UK still a member of the EU but subject to the 2018 Act which purport to have retroactive effect. Article 89 of the Withdrawal Agreement (endorsed by HMRC v Perfect) make ECJ decisions relating to litigation commenced before Brexit or during the first period binding. ECJ decisions post Brexit only persuasive. See Lipton and The Umbrella Interchange.
• (7:04) Effect of section 2 2018 Act - saves EU-derived domestic law before IP Completion Day subject to Section 5 (supremacy) and Schedule 1 (Francovich damages).
• (8:56) Schedules 1 and 8 2018 Act - transitional provisions. To what extent, post Brexit, can you rely on general principles of EU law?  Allianz Global v Barclays.
• (12:01) Section 3 of the 2018 Act (incorporation of direct EU legislation) which is subject to Section 5 and Schedule 1.
• (13:06) Section 4 of the 2018 Act (the saving of rights under section 2 ECA). Wide rule important in direct tax field (eg transfer of assets code). Effect in tax law of The Freedom of Establishment and Free Movement of Services EU Exit Regulations 2019. Effect of EU Directives and CG Fry & Son Ltd. Purposive interpretation dealt with in section 6. Harris v Environment Agency.

The second period: 1st January 2021 - 31st December 2023

• (19:49) Section 6 of the 2018 Act (extent to which UK courts bound by ECJ judgments).  HMRC v Perfect, Lipton and The Umbrella Interchange cases.

The third period: post 1st January 2024

• (22:18) RULA now takes effect. It is not retrospective and only covers disputes that relate to the period post January 2024.
• (23:53) Section 2 of RULA repeals section 4 of the 2018 Act. Section 3 of RULA abolishes the supremacy of EU law. Will therefore be very difficult to rely on EU law in the direct tax arena (even in Transfer of Assets Code) post 1st January 2024.
• (25:54) VAT and excise duties in a different position due to section 28 Finance Act.
• (27:10) Section 6 of RULA is not yet in force. Amended test as regards looking at earlier cases. VAT most likely to be affected.

EU law remains very relevant up to 1st January 2024, despite Brexit. And EU law remains relevant going forward in the VAT context. After 1st January 2024 EU law may still have an impact on the construction of UK law.

Citations

Legislation

• Retained EU Law Revocation & Reform Act 2023 ("RULA")
• European Union (Withdrawal) Act 2018 (the "2018 Act")
• Article 89 Withdrawal Agreement
• The European Communities Act 1972
• The Freedom of Establishment and Free Movement of Services EU Exit Regulations 2019
• Section 28 Finance Act 2024

Transfer of Assets Code

Cases

• HMRC v Perfect [2022] EWCA Civ 330
• Lipton v BA Cityflyer Ltd [2024] UKSC 24, 3 WLR 474
• The Umbrella Interchange Fee Claimants v The Umbrella Interchange Fee Defendants[2024] EWCA Civ 1559 and [2023] CAT 49.
• Franciovich and Bonifaci v Italy
• Allianz Global Investors & Or v Barclays Bank & Ors [2022] EWCA Civ 353
• CG Fry & Son Ltd [EWCA] Civ 730 on appeal to the Supreme Court
• Omagh Leasing
• Harris v Environment Agency [2022] EWHC 2264 (Admin)

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Hello, so this is Barbara Belgrano and Jeremy Woolf. You're listening to the ‘Continued relevance of EU law after Brexit’ on Pump Court Tax Chat.

Hello, I'm Jeremy Woolf and I hope you enjoy this pump court tax chat. In this session, I, Jeremy Woolf and Barbara Belgrano are going to talk about the continued relevance of European Union law to tax post Brexit. So the first thing I was going to ask Barbara is why is this an area that interests you?

Well, EU law and the interaction with the tax code has come up in several of my cases and notably the franked investment income group litigation is really all about the interaction between EU law rights and our domestic code. What about you?

I became interested in it as a result of appearing in a couple of VAT references. And what I liked about European Union law was how it was under laid by general principles, which could provide protections for taxpayers against some actions by member states, including the United Kingdom. And as a result of that interest, I became a member of and chair of the Chartered Institute of Taxation's European Union and Human Rights Subcommittee and represented them on the European Confederation of Tax Advisors, CFE, and represented that body on the European Commission's VAT Expert Group. That was a role that I ceased to have post Brexit, but I still chaired the Indirect Tax Committee and currently chair its fiscal committee.

Shall we dive into some of the details to where we are today? Do you think it's fair to say we've got three broad periods to consider? So first, periods up to the 31st of December 2020, when, for all intents and purposes, the UK remained subject to EU law. Second, the period between the 1st of January 2021 and the 31st of December 2023. And then the period from the 1st of January 2024, when the Retained EU law (Revocation and Reform) Act 2023, sometimes referred to as RULA, and the Finance Act 2024 came into effect. Do you think that's broadly a useful structure?

That's a very fair summary, although I think one quite important point to note is that the European Union Withdrawal Act 2018, which, despite its name, effectively retained a large body of European Union law, is unusual legislation because quite a few of its provisions are retroactive. So even if you've got a dispute that relates to a period when we remain part of the European Union, it's still possible that the legal position has been impacted by the Brexit legislation.

So can we take that first period then, which is up to 31st of December 2020, at 11pm, which was referred to as IP Day. Can you tell us a bit about what full EU law or what EU law as amended by the 2018 Act, as you've just said, looks like?

Well, during that period, we were a member of the European Union. So obviously, European Union law continues to have some effect, but it's subject to some of the provisions in the 2018 Act, which purport to have retroactive effect. The 2018 Act makes it clear that it doesn't impact on proceedings that were commenced before Brexit, but that makes it clear that it could impact on proceedings that were commenced after Brexit, even though they relate to periods while we were a member of the European Union. The impact of the Withdrawal Act is in fact limited, but this isn't clear from its terms, by the withdrawal agreement, because Article 89 of that agreement requires the UK courts to give effect to decisions of the European Court of Justice that were decided before Brexit or on references to the European Court, which are decided after Brexit.

So those decisions, and this is something that's been held by the Court of Appeal in a case called HMRC and Perfect, remain binding. But decisions of the European Court of Justice that are otherwise decided post Brexit are just persuasive. So it's open to the UK courts not to follow the European Court decision, even though the dispute relates to a case which arose before Brexit.

And that's something that the Supreme Court has said was the position in a case called Lipton, and the Court of Appeal has said something very similar in a case called Umbrella Interchange Fee.

So let's look at some of the other provisions of the 2018 Act. Let's consider, for example, Section 2, the saving for EU-derived domestic legislation, which was saved as it has effect in domestic law immediately before IP Completion Day, subject to Section 5 and Schedule 1. And Section 5 is dealing with the principle of supremacy, in large part, and the Charter of Fundamental Rights. And Schedule 1 deals with, for example, Frankovich damages. What do we take from Section 2?

Well, I'm not sure we take too much from Section 2 in the tax context. And I can see that the Value Added Tax Act is retained EU law, but since it has effect as an act of Parliament, it doesn't really impact on its status. I suspect Section 5, which you referred to, is more significant because by continuing, and this is possibly something that would be very surprising to a Brexiteer, the idea of the supremacy of European Union law, it retains obligations of conforming interpretation. So that's very important in relation to the Value Added Tax Act. You've still got to interpret it, if you can, in a conforming manner with European Union law.

But the principle of supremacy doesn't apply to enactments or rules made on or after IP Completion Day. So you're referring to the pre-IP Completion Day enactments or modifications so far as they're consistent with the enactment?

That's correct, because Section 5 says that it applies to existing legislation, but not to future legislation. So as one would expect with Brexit, Parliament, if it wants to, can alter the law as it pleases going forward.

And there are some important transitional provisions as well, aren't there, in Schedule 8, which apply to Section 5 and also Schedule 1, and in particular, therefore, to the Charter and to certain restrictions in Schedule 1.

Both Schedule 1 and Schedule 8 are quite significant when you're looking at the extent to which you can rely on, or continue to rely on, general principles of European Union law. Because what Schedule 1 says is, effectively, you can't rely on European general principles to disapply an Act of Parliament going forward. And Schedule 8, Paragraph 39, contains a number of possible exceptions to that, but they're actually quite limited. So one of the problems post-Brexit has been to what extent you can continue to rely on general principles. It's quite clear that they're intended to have some effect. So insofar as general principles impact on, let's say, for example, the correct construction of an article in the VAT Directive, which is given effect by UK law, it's quite clear that you can take account of general principles to that extent.

But bringing a freestanding claim, like a Riezmer claim, is possibly problematic, because it could be said, well, that's bringing a claim based on general principles and they don't survive. I can see that that kind of begs the question of what is meant by a general principle, and is having a remedy such a principle? But there is a Court of Appeal judgement in Alliance Global, which seems to provide some support for arguments that it is, but it's possible maybe the Supreme Court will take a different view. And one reason why I would say that's a questionable approach to have adopted is that you've got a specific provision directed at factor 10 damages, which possibly suggests that an entitlement to an EU remedy isn't itself, for these purposes, a general principle. But that's obviously a moot point.

Yes, you're referring to paragraph four of Schedule 1, there's no right in domestic law on or after IP day to damages in accordance with Frankovich.

Well, I think there's a transitional provision for that. And there is also a more restrictive transitional provision dealing with your ability to bring claims based on general principles. So I think there's, from memory, a three year period in which you can do so. But again, it says that you can't do so if it disapplies legislation. So it's questionable to what extent that really benefits you.

So let's think about section three, then, which deals with incorporation of direct EU legislation, which includes, for example, EU regulations, and brings it in to domestic law on or after IP Completion Day, so far as it was operative immediately before IP Completion Day. Again, it's subject to section five in Schedule 1, which we've discussed. But what could that apply to, particularly in the context of tax?

Well, again, that's a section which only has very limited application in the tax context, in part, because, let's say, if you're dealing with VAT, the Taxation Cross-Border Trade Act 2018 effectively repeals your ability to rely on most regulations. The implementing regulation continues to have some relevance, but only as an interpretive aid to the directives. So section three isn't hugely significant. It's section four, which is really the section of most materiality.

So section four, the saving for rights, etc, under section two of the ECA, it is, in wide language, it refers to any rights, powers, liabilities, obligations, restrictions, remedies, and procedures, which immediately before IP Day were recognised and available in domestic law by virtue of section two, and are enforced, allowed, and followed accordingly. So I see that's broad, but there's a slightly different rule, isn't there, for rights arising under an EU directive. Can you tell us about the differences, the wide rule and the EU directive rule?

Well, the wide rule is potentially significant, because that is the foundation for any arguments about being able to continue to rely on EU treaty freedoms. And those treaty freedoms have been of considerable significance in the direct tax field, because they've been used to challenge the compatibility of a number of provisions with European Union law. I mean, one example is the transfer of assets code. So that is the section, as I would see it, that would enable you to say that you, HMRC can't impose a charge on us under the transfer of assets provisions, because they are, for example, contrary to my rights to freely move my capital. When you're looking at the fundamental freedoms, nothing was done as part of the Brexit process to remove the freedom to move capital. The position was different with the freedom to provide services and the freedom of establishment, because there was a statutory instrument, the Freedom of Establishment and Free Movement of Services EU Exit Regulations 2019, which purported to remove a person's ability to rely on those freedoms.

However, it's not entirely clear what effect they have in the tax context, because when you look at the Withdrawal Act, it says no regulations can be used to effectively impose tax. So the question is, do those regulations, when applied in the tax context, have that effect so that you can still rely on the fundamental freedoms? Or is there an alternative construction that means that they're valid even in the tax context?

What about directives then? What's the position for directives under Section 4?

Section 4 also gives effect to directives, provided that the particular right you're relying on is of a kind that's been recognised in a decision that was taken before 2020. And Barbara, do you want to say a little bit more about that?

Well, there's quite an interesting case, which is actually going to be heard by the Supreme Court on Monday, in which the Court of Appeal, the case is called CG Fry and Son Ltd. The Court of Appeal noted that it's important to recognise that the subject matter of Section 4 is the doctrine of direct effect. So that being the principle that a directive is normally binding as to its objective, its outcome, the member state has to give effect to it in that way, but it needs to be transposed. And in direct effect, in certain circumstances, you can rely directly on the directive. And the Court of Appeal in this CG Fry and Son case was saying, look, Section 4 of the Withdrawal Act is really dealing with that doctrine of direct effect. And what it doesn't do is deal with the interpretation of domestic legislation in the light of EU law. That exercise of interpreting, we often refer to it as purpose of interpretation, or malicing, you referred to it earlier, Jeremy, conforming interpretation, that's dealt with by Section 6. And this distinction is very important, says the Court of Appeal. But as I say, the decision is about to be heard by the Supreme Court. So it'll be very interesting to see whether the Supreme Court agrees, particularly because I think we'll come on and discuss Lipton, which is a fairly recent Supreme Court decision on the Withdrawal Act, and in particular, Section 3. But yes, you're right. I mean, the question of whether a right arising under a directive is of a kind recognised by the European Court has given rise to litigation. And there's an administrative court decision, the High Court called Harris, an environment agency, in which the judge noted that Section 4 only requires the provision you're trying to rely on to be of a kind that's been held to have direct effect. So put another way, it doesn't itself need to have been held before IP day as being directly effective. And so long as you can point to a provision in a directive that is of a kind, which is the same as your provision, then that's enough to satisfy those important of a kind words in Section 4, subsection 2 of the Withdrawal Act.

And it's actually the case is well worth reading, because the judge also makes the point that so long as the relevant article has been recognised as having effect in domestic UK law, in that case, there was an upper tribunal decision, which had recognised the relevant article as having effect in domestic law, then even if that decision was wrong, and per incuriam, that is not relevant, says the court to the test in Section 4.2. It might all be different if there's an appeal, but in the absence of an appeal, you don't inquire, was this case correctly decided? Was it decided per incuriam? You simply say, well, look, my right has been recognised in domestic law. And that's enough for Section 4, sub 2. So, shall we move on to the next period, then, RULA and FA 2024, or is there anything else we should look at in relation to the pre-1st of January 24 period?

We've already kind of commented a bit on Section 6, which is quite an important section, which looks at the extent to which UK courts are bound by judgments of the Court of Justice, as I indicated, effectively, and this is a point made by a case called HMRC and Perfect. If you're looking at judgments of the court before Brexit, they are binding when you're looking at the period prior to Brexit. But I don't think it automatically follows that that applies going forward. And judgments post Brexit, unless they arise from a reference from the United Kingdom, are just persuasive, even for periods before Brexit. And that's a point that arose in the Lipton litigation, which went up to the Supreme Court and was decided at the end of last year.

And another relevant decision, which possibly suggests that the Supreme Court may be asked to reconsider its position, is called Umbrella Interchange Fee, decided by the Court of Appeal at the end of last year. And one quite interesting point that I think arises from the Umbrella Interchange case is that the Court of Appeal has essentially said, well, because there was a prior UK decision, which it regarded as being binding using UK principles of precedent, they wouldn't give effect to the European Court judgement anyway. So they were saying, essentially, it's going to be a matter for the Supreme Court to decide to give effect to the judgement if anyone was going to.

And in Lipton, I think it's right, isn't it, that they weren't considering the position after RULA. It was a pre-RULA situation and therefore they didn't need to consider what would have changed or what changes after the end of 2023.

And that's correct. And I think one point that's worth making about the Revocation Reform Act 2023 is that it's slightly different from the Withdrawal Act, because while the Withdrawal Act appears to have provisions with retroactive effect, there's nothing similar in the ‘23 Act. So effectively, your ability to rely on EU law for the period up to 1 January 2024 is governed by the 2018 Act. And that is true even if the proceedings are commenced after the 1st of January 2024. So it's only disputes that relate to the period after the 1st of January 2024 that the new Act is relevant to. So it's important to appreciate that you're potentially looking at three different periods and the impact of European Union law during those periods may differ. So you've got the period while we largely remained subject to European Union law up the end of 2020. Then you have the period from 1 January 2021 to 1 January 2024, when your ability to rely on EU law is governed by the Withdrawal Act of 2018. And then you've got the period post January 2024, when the provisions of the Revocation Reform Act take effect.

So looking at some of those, Section 2 repeals Section 4 of the 2018 Act. So the one we were discussing in terms of it saves treaty rights and directly effective rights in certain circumstances. Section 3 of RULA abolishes supremacy, which again, you mentioned earlier, provides the principle of supremacy of EU law is not part of domestic law. Is that the same? Does it apply the same for all taxes in the same way?

The first comment to make is that I suspect that as a result of the 2020 Free Act, it's going to be very difficult to in any way rely on EU law in the direct tax context from 1 January 2024. I did notice that in relation to the transfer of assets provisions, there was a comment in the budget notes for the November 2024 budget, suggesting that EU law might possibly still be relevant and that they would change the law to make it clear that it wasn't relevant. But subject to that, I don't think there is really any ability in the direct tax context to continue relying on European Union law since that date. And I'm even sceptical about one's ability to do so in relation to the transfer of assets code because the EU defence is dependent on you having an EU right. And once you abolish Section 4, as the 2020 Free Act does, there's nothing which gives you an ongoing EU right, which then can provide you as a defence under the transfer of assets provisions.

And general principles as well, they're no longer part of domestic law. After the end of 2023, are they?

Well, I think the position is different when you come to VAT. And that's because there is a bespoke provision in Section 28 of the Finance Act. And that effectively just gives partial effect to the 2023 changes. So your ability to rely on principles of direct effect has disappeared. But what Section 28 says is that otherwise, the provisions of the 2018 Act continue to have effect. So principles of conforming interpretation continue to apply. And that also, in that context, extends to paying regard to the general principles of EU law. So in the context of VAT and possible excise duties, EU case law and EU general principles may remain of some relevance for that reason. But only insofar as a conforming interpretation is possible, you can't rely on it to override UK legislation if a conforming interpretation isn't possible.

And let's just talk about one of the sections of RULA that hasn't come into force yet, Section 6. Because you mentioned earlier, the test that certain courts, including the Court of Appeal in a House and the Supreme Court can use in order to decide whether to depart from retained EU case law, which is essentially the same test the Supreme Court decides in deciding whether to depart from its cases, whether it appears right to do so. And Section 6 of RULA prompted quite a lot of commentary because it changes the test. So in deciding whether to depart from retained EU case law, the higher court must have regard to, one, the fact that decisions of a foreign court are not, unless otherwise provided, binding. Two, any changes of circumstances which are relevant to the retained EU case law. And three, the extent to which the retained EU case law, and these are important words, restricts the proper development of domestic law and proper development of domestic law is not defined. And there are slightly different but similar provisions in relation to the test to be applied in departing from retained case law. But as I say, that hasn't actually come into effect yet. What do you think about that amended test?

Certainly, if you're looking at VAT, one further point is that Section 28 of the Finance Act 2024 makes express reference to that amended text when you're looking at the application of general principles, but is otherwise silent. So it's not clear to what extent, when you're looking at VAT, which is probably going to be the one tax area where these questions remain relevant, to what extent those changes on the whole are going to be of any relevance. And certainly, if you gave too much effect to those changes, then you're possibly undermining the whole purpose of Section 28. So there is a bit of a tension there. But I suspect that insofar as Brexit could be said to have changed the landscape, there may be arguments that even if you were looking at Section 6 before the amendments, that it was appropriate to depart from CJEU jurisprudence for that reason.

Barbara

So thank you very much, Jeremy. You've taken us through a lot of legislation and these three interesting periods and drawn out some of the questions that still remain in relation to how this will all play out.

So I think the main takeaway I would say is that EU law remained very relevant for the period between. 1 January 2021 and 1 January 2024, despite Brexit. And certainly, when you're looking at the VAT context, it remains relevant going forward. But you've got to in both periods, look at the position through the principles set out in the Withdrawal Act 2018, as modified effectively by Section 28 of the Finance Act 2024 and the Revocation and Reform Act 2023 going forward. So it's possible that the analysis will change depending on which period you're looking at. And certainly, going forward, it's no longer going to be possible to rely on European Union law to override UK legislation. All it can do is possibly impact on its construction.

Thank you very much for listening to Pump Court Tax Chat. This is Barbara Belgrano and Jeremy Woolf on the relevance of EU law after Brexit.

Thank you.

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