I have been asked to supply the Aglow Lighting Company with a legal sentiment on the likely revenue enhancement deductions of subdivision 10 ( 1 ) of the Environmental Taxes Act 2007, which came into force in the UK on 31stJanuary 2008, on its current concern activities:
The impact of subdivision 10 ( 1 ) of the Environmental Taxes Act 2007 on the Company’s current concern activities ; viz. , fabrication and providing standard visible radiation bulbs, lamp bases and lamp shades on a sweeping footing to supermarkets, garden Centres, DIY shops, section shops and office equipment providers:
The first thing to observe is that s10 ( 1 ) of the 2007 Act will merely use to those merchandises [ 1 ] which are likely to be used in domestic premises. While this can non be gleaned from a actual reading of s10 ( 1 ) , it is clear, from the long rubric of the Act, that Parliament did non mean for this revenue enhancement to use to merchandises sold for usage in non-domestic premises [ 2 ] .
Therefore, I would rede the Company to bespeak a revenue enhancement freedom for all those merchandises sold to retail merchants who will sell them for usage in commercial premises [ 3 ] , and a revenue enhancement decrease for those goods sold to retail merchants who are unable to find whether or non the merchandises are more or less likely to be sold for usage in domestic premises [ 4 ] .
In respect to those merchandises which are likely to be sold for usage in domestic premises, the first inquiry to be determined is whether or non the criterion visible radiation bulbs, standard lamp bases and/or standard lamp shades manufactured by the Company can be classed as ‘qualifying products’ for the intents of s10 ( 1 ) of the 2007 Act.
For the intents of s10 ( 1 ) a ‘qualifying product’ agencies: “Any point ( or constituent of an point ) which is non environmentally friendly and where the undermentioned conditions are satisfied: ( 1 ) An alternate point ( or constituent ) to the 1 in inquiry is available at the clip of sale or such an alternate point ( or constituent ) could be manufactured at no important extra cost to the maker ; and ( 2 ) The said alternate point would be regarded as environmentally friendly under this Act.”
Let us measure each type of merchandise that the Company manufactures, in bend, to find whether or non they are likely to be classed as ‘qualifying products’ under the 2007 Act:
The Standard Light Bulbs:
Assuming that these light bulbs would non be classed under the Act as being ‘environmentally friendly’ , it appears that the sale of these merchandises would pull an extra 3 % revenue enhancement, in conformity with s10 ( 1 ) of the 2007 Act, because ( I ) there is an alternate merchandise on the market ; and ( two ) this alternate merchandise is energy salvaging, and therefore, ‘environmentally friendly’ .
Additionally, the Company has admitted that the cost of fabricating these alternate visible radiation bulbs is non significantly greater than the cost of fabricating its bing visible radiation bulbs, and so even if no option could be identified as being ‘on sale’ , the first limb of the ‘qualifying products’ trial would be satisfied.
The Standard Lamp Bases:
Again, we must presume, because these lamps can non ease the usage of energy-saving bulbs, that they will non be considered ‘environmentally friendly’ for the intents of the 2007 Act.
However, it is non clear whether or non there are already available in the market place criterion lamps ready to suit the energy-efficient bulbs.
If such options do be, so the sale of the non-environmentally friendly lamps would probably pull the 3 % excess revenue enhancement because ( I ) an alternate merchandise is on sale in the market ; and ( two ) this alternate merchandise is energy salvaging in that it facilitates the usage of energy salvaging visible radiation bulbs, and may hence be considered ‘environmentally friendly’ .
If there are no such options for sale in the market place, so the trial as to whether or non the bing lamps will be classed as ‘qualifying products’ flexible joints on ( I ) how much of the ?1,560,000 ( the amount estimated to be required in order to get down the industry of environmentally friendly lamp basesandlamp shades ) will necessitate to be allocated to the industry and production of the environmentally friendly lamp bases,merely; and ( two ) whether or non this extra fabrication cost would be classed as ‘significant’ for the intents of the 2007 Act.
In the absence of the information required to reply question ( I ) , it is non possible to supply a unequivocal reply to enquiry ( two ) . However, we can supply the undermentioned penetration into what, for the intents of the 2007 Act, might be considered ‘significant’ extra cost:
It is likely that the trial for significance will develop with a strong subjective component, i.e. an question will be made into how important the extra cost would be for the Company in inquiry [ 5 ] . An illustration of the Courts deducing a subjective component into the definition of ‘significant’ can be seen in the instance of McCafferty V Metropolitan Police District Receiver [ 1977 ] 1 WLR 1073, 1081.
For illustration, if the entire extra cost involved in fixing for the industry of the modified environmentally-friendly lamp bases histories for half of the estimated entire extra disbursal of ?1,560,000, i.e. ?780,000, so this extra cost would stand for 10.4 % of the Company’s entire one-year turnover [ ?7.5 million ] . AnysensibleCompany would see an extra disbursal stand foring over 10 % of the Company’s entire one-year turnover to be important.
On this footing, I would rede that the Company would be able to reason that it should non pay the 3 % excess revenue enhancement on the industry and sale of its criterion ( non-environmentally friendly ) lamp bases because it would be significantly more to fix for the industry of the environmentally-friendly options.
If the significance of these extra fabrication costs are disputed, so I would rede the company to do the followers, extra, statement:
- If the Company was to fabricate the alternate environmentally-friendly version of the merchandise, research demonstrates once and for all that it would non be able to bear down its clients more money for each lamp.
- This means that the attendant net income border available on each lamp will necessarily diminish ( because the fabrication cost per unit will increase while the R.R.P. will hold to stay the same ) .
- This means that, over the same volume of one-year gross revenues, the net incomes realized by the Company will diminish, and these net incomes should be accounted for when ciphering the ‘significance’ of the extra costs for the intents of s10 ( 3 ) of the 2007 Act [ 6 ] .
The Standard Lampshades:
Assuming that the standard lamp shades would non be considered ‘environmentally friendly’ for the intents of the 2007 Act, so the place in respect to whether these will be classed as ‘qualifying products’ is the same as that described above in relation to the criterion lamp bases presently manufactured by the Company.
Opinion in respect to the revenue enhancement position of stock which existed prior to the Act coming into force:
I have been informed that, at the clip the Act came into force, the Company was in ownership of about ?200,000 of merchandise stock.
I would rede the Company to sell this stock into the commercial sector where it is improbable to be used in domestic premises. In this manner the Company can seek a valid freedom from s10 ( 3 ) of the 2007 Act.
A V Hoare & A ; others [ 2008] UKHL 6
Grey V Pearson ( 1857 ) 6 HL Cas 1
McCafferty V Metropolitan Police District Receiver [ 1977 ] 1 WLR 1073
EC Defective Product Directive, Directive 85/374/EEC
Heydon’s Case ( 1584 ) 3 Co Rep 7a