ECJ Backs Lebara on Double VAT Payment Row

The European Court of Justice has ruled in favour of phone company Lebara - embroiled in a dispute with HMRC - over whether it should have to pay VAT twice.

The spat centred on whether the operator should be hit with a VAT double whammy when it sold its international calling cards to distributors and again when end users activated the cards.

HMRC believed that Lebara should pay VAT in the UK every time a customer in Europe activated a card, as the service was being delivered from London, in addition to when it sold cards to UK distributors.

However, the ECJ ruled in favour of Lebara, saying that the MVNO was only engaged in one sales relationship with its distributors, who are in turn responsible for the relationship with end users.

Grant Thornton head of indirect tax Lorraine Parkin said: ‘The judgment is good news for Lebara and other mobile operators. This is a significant decision with substantial amounts of tax at stake.

‘HMRC's stance on this issue has always been somewhat illogical, as it would mean that the same supply can be taxable in two member states. The Court's judgment today provides welcome clarity and will hopefully lead to a more consistent application of the rules by the tax authorities in the EU.’