UPDATE: Channel Islands fail in legal challenge against Government closing cheap CD/DVD tax loophole
A legal challenge against the scrapping of a tax loophole that allowed companies in the Channel Islands to sell DVDs and CDs VAT-free has failed.
After three days in the High Court last week, Jersey and Guernsey lost their case against the UK Treasury, in which they argued against ending Low Value Consignment Relief (LVCR) on certain items.
Both island governments said they were considering an appeal. But UK Government lawyers said ministers would "go ahead with the legislation as planned".
Online retailers will no longer be able to sell cheap CDs, DVDs, Blu-rays and games from the Channel Islands from April 1st next year.
The Treasury is closing a tax loophole which currently allows retailers to avoid paying VAT on goods under £15 sold from the Channel Islands.
The so-called Low Value Consignment Relief (LVCR) was widely used by companies selling CDs and DVDs online such as Amazon, Tesco and Play.com.
According to the Government, the tax loophole is costing the Treasury £140m a year.
On November 1st the maximum price of goods allowed under LVCR was cut from £18 to £15. From next April, the tax relief will be abolished completely, allowing high street retailers to compete more fairly in the home entertainment market, the Government argues.
"These reforms will ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands," says David Gauke, Exchequer Secretary to the Treasury.
The Government says that LVCR will continue to apply to goods coming from other countries outside the EU.