European Court to hear D&A tax case

Dollond & Aitchison could be facing a multi-million pound tax bill unless it convinces a European Court that the contact lens packages it sends UK patients from its Jersey distribution centre are worth under £18.

Indigo Lighthouse's distribution centre in St Saviour, Jersey

Following our report last week (News, February 4) on MPs' call for a VAT loophole in Jersey to be closed, it has emerged that a tax tribunal involving D&A and HM Customs & Excise has been referred to the European Court of Justice in Luxembourg.

If Customs wins the case, D&A may have to pay VAT on the thousands of packages it has sent since 1999, when its tax arrangements were initially challenged.

Since 1998, D&A has outsourced the distribution of its contact lenses to Indigo Lighthouse, a Glasgow-based company which runs the distribution centre on Jersey.

Customs is once again challenging the practice of cross-subsidising professional services through imposing high margins on the products sold. Unlike previous disputes with the profession, this case is heavily complicated by the tax advantages Jersey offers. It is unlikely to have any ramification for the profession as a whole.

A spokesman for Customs told optician that the European case, which is not expected to be heard until late 2006, concerns the value for import VAT purposes of the packages D&A sends its patients on the mainland. D&A has responded to Customs that the price paid by customers is for two separate supplies, for the contact lenses and for associated professional services - fitting and aftercare. It has maintained that because a proportion of a single transaction is attributed to professional services, the value of the product is below £18, crucially the threshold below which commercial consignments to the UK are not required to pay VAT.

Customs has claimed that the payment is for a 'single composite supply of lenses and professional services' and therefore above the 'de-minimus' limit. It therefore believes VAT should be paid on the whole amount.

D&A confirmed it was liaising with Customs on this matter but had no further comment.

Treasury minister John Healey appeared last week in front of a sub-committee of the Treasury Select Committee (News, February 4).

He said the VAT loophole translated to a 'not insignificant revenue loss [for the Treasury] of about £80m a year' but that this was set to grow over the next few years to around £200m.

'But on the other side, we also see arguments from consumer groups that would like us not to reduce the threshold, as some businesses argue,  but to increase it because of the benefits it would bring to the consumer,' said Healey, adding that matter was being kept carefully under review.
rob.moss@rbi.co.uk