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HMRC internal manual

VAT Refunds

Unjust enrichment: Important considerations

There is a great deal of European Court of Justice case law on this subject which sets down a number of important points.

The first is that whilst a person who has paid tax contrary to provisions of Community law is entitled to recover that overpayment, the national tax administration is entitled to refuse to repay the taxpayer where it can show that the claimant did not bear the economic burden of the wrongly paid tax but passed it on to its customers.

The second is that because the invocation of the unjust enrichment defence is the restriction of a subjective right derived from Community law, it is something that should be done only exceptionally (Commission of the European Communities -v- Italian Republic, Case C-129/00).

The third is that the immediate and retrospective enactment of an unjust enrichment defence is not contrary to Community law provided that the defence is only used against payments made after the enactment and is not used to revisit claims already paid (Weber’s Wine World Handel GmbH -v- Abgabenberufungskommission Wien, Case C-147/01).

Finally, in its judgment in Marks & Spencer Plc -v- CRC, Case C-309/06, the ECJ held that the application of the unjust enrichment defence only to payment traders and not repayment traders offended the Community law principles of fiscal neutrality and equal treatment. The result is that the refusal of claims made before 26 May 2005 (when section 80 of the VAT Act 1994 was amended by section 3 of the Finance (No. 2) Act 2005) was held to have been contrary to Community law.

If you get claims resubmitted that were made before 26 May 2005 and successfully refused for unjust enrichment, you should refer it to Central Policy, Tax Administration Advice, Error Correction Team, Imperial Court, Liverpool - See also Revenue & Customs Brief 05/09.