Friday's news that the European Court of Justice has ruled that alcohol and cigarettes bought from other EU countries can only be exempt from domestic excise duties if they are intended for "the personal use of the private individual" who transports them is very welcome. The ruling means that any such gods shipped across borders by commercial shippers for commercial purposes will be subject to excise duty due in the state in which they are to be consumed.
This is welcome. It supports the notion of 'tax compliance' which the Tax Justice Network promotes and which says that to be tax compliant a transactions must carry the right amount of tax (and no more) due in the location in which the economic substance of the transaction arose, and that the tax must settled at the right time.
If the Advocate General's ruling in this case had been accepted it was quite clear that excise duty would have been paid in the country of origin of the goods in question and not in the state in which the goods were to be consumed, which is where the economic substance of the transaction arises in the case of a consumption tax. The Advocate General's ruling would therefore have endorsed tax avoidance. The ECJ have acknowledged that and over-ruled his advice. Which is great news for tackling avoidance in business transactions, even if the concept of compliance can sill be abused in these transactions by individuals who can be bothered to arrange personal shipment across borders.
This does however lead to another question. How can the UK continue to tolerate the abuse that is going on when CDs and DVDs are shipped to Jersey VAT free for immediate return to the UK, also VAT free when this whole transaction is arranged for the commercial benefit of the shipper? It is clear that the consumer has no part in arranging this shipment and will consume the goods in the UK. As such the transaction should be subject to VAT in the UK using exactly the same logic as has been applied in the ECJ ruling on alcohol and cigarettes. This means it is two faced for the UK government to on the one hand welcome the ECJ ruling on alcohol and cigarettes and not at the same time focus immediate attention on the abuse going on based in the Channel Islands.
Let's hope the pre-Budget Report brings news on this or I think litigation is bound to follow, which would seem absurd when it is clear that the in-principle issue is the same, and that the UK government should welcome the change that closing down this abuse in Jersey would bring.