Aircall International Limited and Aircall Export Limited v The Commissioners For Her Majesty's Revenue & Customs, TC 05160
| Jurisdiction | UK Non-devolved |
| Judge | Anne SCOTT |
| Judgment Date | 09 June 2016 |
| Neutral Citation | [2016] UKFTT 0406 (TC) |
| Respondent | The Commissioners For Her Majesty's Revenue & Customs |
| Appellant | Aircall International Limited and Aircall Export Limited |
| Reference | TC 05160 |
| Court | First-tier Tribunal (Tax Chamber) |
[2016] UKFTT 0406 (TC)
TC05160
Appeal number: TC/2010/05430 and TC/2010/04860
VAT- MTIC – onus of proof on HMRC – pleadings – connection - necessity
of assessment – no - whether Kittel applies to the contra trading construct –
whether the appellants knew or should have known that transactions were
connected with a fraudulent evasion of VAT – yes - appeals dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
AIRCALL INTERNATIONAL LIMITED and AIRCALL
EXPORT LIMITED Appellants
- and -
THE COMMISSIONERS FOR HER MAJESTY’S Respondents
REVENUE & CUSTOMS
TRIBUNAL:
JUDGE ANNE SCOTT
MEMBER: HELEN MYERSCOUGH
Sitting in public at Bedford Square on 7-11, 14-18, 21, 22 and 31 July and 26 and
27 August 2014
The Appellants’ Closing Submissions dated 24 September and response to
Respondents Closing Submissions dated 20 October 2014
The Respondents Closing Submissions dated 22 September 2014
Ian Bridge of Counsel, instructed by The Khan Partnership LLP for the
Appellants
John McGuiness QC and Ben Hayhurst of Counsel, instructed by the General
Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2016
2
DECISION
Introduction
The appeals 5
TC/2010/05430
1. The appeal in relation to Aircall International Limited (“Aircall”) was lodged
on 25 June 2010 and was in respect of a decision of the respondents (“HMRC”) dated 10 28 May 2010 denying Aircall input tax credit claims in the sum of £1,806,526.31
relating to 35 transactions (deals) in its monthly VAT accounting periods 04/06,
05/06, 06/06 and 07/06.
2. The amounts, corresponding VAT accounting periods and deal numbers are as
follows:- 15
Periods Amount Deal Numbers
04/06 £880,968.72 1-20
05/06 £676,602.50 21-31
06/06 £83,405.09 32-33
07/06 £1,065,550.00 34-35
3. The 35 deals that generated the input tax, which are the subject matter of these
appeals, consisted of purchases by Aircall of goods from UK traders and the onward
sale and despatch of those goods to traders based in another Member State of the EU
(“broker deals”). The goods were purchased with VAT at the standard rate and sold 20 with VAT at the zero rate. Those deals were conducted over a period of four months
being April to July 2006 with the first purchase on 3 April and the last on
27 July 2006.
4. HMRC has denied all of Aircall’s export transactions for the VAT periods
March-July 2006 with the exception of one deal in the VAT accounting period 25 July 2006 regarding a purchase of 1500 Motorola C118 telephones from Calltel
Telecom Limited and the sale to Majedh Electronics on 4 July 2006 in which the deal
was traced back to the manufacturer Motorola. The margin on that deal was 19.64%.
HMRC has not denied the input tax for Aircall’s UK to UK deals or its acquisition
deals carried out in the VAT periods in issue. 30
5. HMRC contend that all 35 of the contested deals entered into by Aircall have
been traced to a tax loss via a defaulting trader and that the input tax incurred by
Aircall in those transactions was connected with the fraudulent evasion of VAT and
that Aircall knew or should have known that.
3
6. The Statement of Case incorporating a Schedule explaining the nature of
Missing Trader Intra-Community (“MTIC”) fraud in basic chains and with appendices
including the decision letter with its appendix, the Notice of Appeal with its appendix
and the deal sheets with deal chains was filed by HMRC on 20 September 2010.
TC/2010/04860 5
7. The appeal in relation to Aircall Export Limited (“AEL”) was lodged on
28 May 2010 and related to the decision of HMRC dated 28 April 2010 to deny
AEL’s input tax credit claim in the sum of £44,730 relating to one transaction (deal)
on 29 September 2006 included in its monthly VAT accounting period 09/06.
8. HMRC contend that the supply chain leading to AEL’s one broker deal, 10 Deal 36, traces back to Future Communications (UK) Limited (“Future”), which, it is
now conceded, was at all material times a vehicle for the fraudulent evasion of VAT.
9. In its VAT accounting periods 04/06 and 07/06 Future made 6,971 supplies of
goods and of those 69% of the broker deal chains have been traced back to UK tax
losses of almost £144 million. Those broker deal chains have been traced back to 15 seven UK traders and the output VAT remains unpaid.
10. There is no suggestion that there was any fraud in AEL’s own supply chain.
11. HMRC contend that Deal 36 had been traced to a tax loss via the “contra-
trader” Future and that AEL knew of the connection with the fraudulent evasion of
VAT or, in the alternative, the appellants should have known of the connection. 20
12. The term contra-trader is widely acknowledged to be “an HMRC construct” to
describe a trader which (a) buys goods from a defaulter and exports them claiming, in
what is termed the “dirty cha in”, the input VAT (“the dirty input VAT”) on the purchase;
and (b) in a “clean chain”, imports goods and sells them to a third trader, and then
offsets the dirty input VAT against the clean input VAT on the sale to the third trader. 25 The dirty input VAT is by this means sought to be transmuted into clean input VAT in
the hands of the third trader; or at any rate the third trader is sought to be so distanced
from the default that he could not know of the connection to it, or HMRC would not
discover it.
13. The Statement of Case incorporating a Schedule explaining the nature of MTIC 30 fraud in both basic and contra chains and with appendices including the decision letter
and the deal sheet with deal chains was filed by HMRC on 13 September 2010.
General
14. The appeals were heard together at the request of both parties as, in the relevant
period, although separate legal entities with separate bank accounts, statutory 35 accounts and VAT registrations, both appellants effectively operated on a day to day
basis as one unit sharing the same staff, premises and resources. The Tribunal refused
the Application to consolidate the appeals and on 17 December 2010 directed that
they be heard together.
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