Jersey Choice Ltd v His Majesty’s Treasury [2024] UKSC 5

Jersey Choice Ltd, a Jersey-based horticultural mail order company, claimed Francovich damages against HM Treasury for allegedly breaching EU law by removing Low Value Consignment Relief from Channel Islands imports only. The Supreme Court dismissed the appeal, holding the measure was a fiscal matter, not customs, and Jersey was a third territory for VAT purposes.

Facts

Jersey Choice Ltd (JCL), a Jersey-registered company, exported horticultural products by mail order to UK consumers. The products qualified for Low Value Consignment (LVC) Relief, exempting them from VAT. In 2012, HM Treasury removed LVC Relief specifically from mail order imports from the Channel Islands via section 199 of the Finance Act 2012, responding to concerns about ’round-tripping’ tax avoidance schemes exploited by certain UK retailers.

JCL commenced proceedings in 2018 claiming Francovich damages, alleging the selective removal of relief breached articles 28, 30 and 34 TFEU (free movement of goods) and general principles of EU law including equal treatment, fiscal neutrality and proportionality. JCL argued the Channel Islands, being within the EU customs union, should not have been treated differently from other territories listed in article 6(1) of the VAT Directive.

Issues

Issue 1: Customs Regime or Fiscal Regime?

Whether the removal of LVC Relief constituted a charge having equivalent effect to a customs duty under articles 28 and 30 TFEU, or whether it fell within the fiscal regime under articles 110 and 113 TFEU.

Issue 2: Application of General Principles of EU Law

Whether JCL could rely on general principles of EU law (equal treatment, non-discrimination) to found a Francovich damages claim, given Jersey’s status as within the customs union but outside the VAT Directive area.

Issue 3: Fundamental Rights Protection

Whether the Court of Appeal failed to protect JCL’s fundamental rights under EU law and the ECHR.

Judgment

Distinction Between Customs and Fiscal Regimes

The Supreme Court held that the customs and fiscal regimes are mutually exclusive. Lord Lloyd-Jones and Lady Rose stated:

“The essential characteristic of a charge having an effect equivalent to a customs duty, and the one which distinguishes it from internal taxation, is therefore that it affects only imported products as such whereas internal taxation affects both imported products and domestic products.”

The Court found that the VAT charge applied to both domestic and imported goods alike, and formed part of a general system of internal dues applied systematically according to objective criteria. Even if the measure were discriminatory, it would not convert a fiscal charge into a customs charge.

Third Territory Status

The Court confirmed that for VAT purposes, Jersey is a “third territory” under articles 5 and 6 of the VAT Directive. The Court cited established jurisprudence:

“there is in the FEU Treaty no general principle obliging the Union, in its external relations, to accord in all respects equal treatment to different third countries and traders do not in any event have the right to rely on the existence of such a principle”

Jersey’s position within the customs union was irrelevant for fiscal purposes; what mattered was its exclusion from the VAT Directive area.

Equal Treatment Principle

Applying the principle from Faust and Swiss International Air Lines, the Court held that EU law imposes no obligation to accord equal treatment to third countries. The Court stated:

“if different treatment of non-member countries is compatible with Community law, different treatment accorded to traders within the Community must also be regarded as compatible with Community law, where that different treatment is merely an automatic consequence of the different treatment accorded to non-member countries with which such traders have entered into commercial relations.”

Implications

This judgment clarifies the boundaries between EU customs and fiscal regimes, confirming that VAT charges, even when arising from imports, remain within the fiscal regime if they form part of a general system of taxation applied without regard to origin. The decision reinforces that territories within the EU customs union but outside the VAT Directive area are treated as third territories for fiscal purposes, without access to the equal treatment protections available to Member States.

The judgment also confirms that the general principle of equal treatment does not extend to requiring Member States to treat all third territories identically when exercising discretionary powers under secondary EU VAT legislation. This has significant implications for businesses operating in Crown Dependencies and other article 6(1) territories.

Verdict: Appeal dismissed. The Court of Appeal was correct to strike out JCL’s claim. The removal of LVC Relief was a fiscal measure to be assessed under article 110 TFEU, not under free movement provisions. Jersey is a third territory for VAT purposes, and the general principle of equal treatment does not preclude different treatment of different third territories.

Source: Jersey Choice Ltd v His Majesty’s Treasury [2024] UKSC 5