Dong and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 November 2016 |
| Neutral Citation | [2017] UKFTT 588 (TC) |
| Date | 11 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0588 (TC)
Judge John Brooks, Elizabeth Bridge
Christopher Marsh-Finch, counsel, instructed by Hogan Brown Solicitors, repealed for the appellant
Christopher Stone, counsel, instructed by the National Crime Agency, repealed for the respondents
Income tax – Discovery assessments – Whether assessments valid and extended time limit applies – Yes – Whether satisfactory evidence to displace assessments – No – Appeals dismissed.
[1] Contrary to the usual practice of appeals before the Tax Tribunal being heard in public this appeal was heard in private. This is because Mr Dong has been charged with money laundering offences and his trial is due to commence on 20 February 2017. Although an application for the appeal to be stayed behind the criminal proceedings was rejected by Judge Mosedale on 22 February 2016 (see Dong [2016] TC 04904), she did direct that the appeal be heard in private and that neither this decision nor any transcript or recording of the proceedings is to be published or released to anyone other than the parties until after the jury has reached its verdict in the first instance hearing of the criminal trial.
[2] It is appropriate, at this point, to remind the parties of Judge Mosedale's directions, which remain in force, and her observation, at [31] that:
Insofar as the criminal trial is concerned, it is for the appellant's representatives to make such applications to the criminal court judge as they consider indicated in order to prevent any detrimental evidence from Mr Dong or findings (if any) in the civil case being used by the prosecution.
[3] On 23 March 2011 the Serious Organised Crime Agency (“SOCA”) served notices on HM Revenue and Custom (“HMRC”), under s 317 of the Proceeds of Crime Act 2002 (“POCA”), that it was adopting its revenue functions in respect of Mr Gui Hui Dong and his former wife Ms Hong Fang for the years 2004–05 to 2008–09 (inclusive). On 21 May 2012 SOCA issued Mr Dong and Ms Fang with “discovery” assessments, made under s 29 of the Taxes Management Act 1970 (“TMA”), for those years amounting in total to £667,222.94 and £131,388.20 respectively (as set out in the schedules appended to this decision).
[4] This is Mr Dong's and Ms Fang's appeal against those assessments.
[5] Although the assessments had been issued by SOCA, it was abolished on 7 October 2014 by s 15 of the Crimes and Courts Act 2013 (“CCA”). Its functions were assumed by the National Crime Agency (“NCA”) which had itself been established by s 1 CCA. Under Part 1 of Schedule 8 to CCA anything in the process of being done by SOCA at the time it was abolished may be continued by the NCA which automatically replaces SOCA as a party in any ongoing litigation, including that before the Tribunal. Therefore, the NCA is now the respondent in this case and where, throughout this decision, we have referred to the respondent as the NCA this should be read, where appropriate, as a reference to SOCA.
[6] Mr Dong and Ms Fang are represented by Mr Christopher Marsh-Finch and Mr Christopher Stone appears for the NCA.
[7] We were provided with bundles of documents, contained in seven lever arch files, comprising, inter alia, witness statements and exhibits including an affidavit of Ms Anna Petrarca of the NCA who made the assessments and a statement made in November 2013 by George Georgiou FCCA in support of an application by Mr Dong and Ms Fang for the postponement of tax in this appeal which Judge Mosedale granted in respect Ms Fang but not Mr Dong (see Dong [2014] TC 03268). In addition, we heard from Mr Dong (through an interpreter) and Mr Roy Stoddart of the NCA.
[8] It is on the basis of this evidence that we make our findings of fact.
[9] Credit Lucky Limited (“Credit Lucky”) was established in August 2004 as a Money Service Bureau serving the Chinese community by offering money exchange and remittance of funds to China. It operated, under a Money Laundering Regulation licence from premises in London, Liverpool, Manchester, Birmingham, Belfast and Glasgow. Mr Dong was its sole director and shareholder and Ms Fang its Company Secretary. On 21 June 2013 the NCA's petition to wind up Credit Lucky was granted by the Companies Court which confirmed the winding up on 29 January 2014.
[10] It is not disputed that Mr Dong has held 27 personal bank accounts with five different banks between 2004 and 2007 and that Ms Fang has held 17 personal accounts, also with five different banks, between 2005 and 2009. This, Mr Dong says, is partly explained by the difficulties encountered by Credit Lucky in opening a business account. Over a five year period some £74 million was deposited in these personal accounts. It is accepted that a substantial proportion of these funds were transferred to Credit Lucky.
[11] This appeal is concerned with the significant amount that was not.
[12] During 2004–05 £26,113,325.46 was paid into Mr Dong's personal accounts. Although most of this was transferred to Credit Lucky £603,959 was not. Of the £992,320.21 paid into Ms Fang's personal accounts £75,326 was not transferred to Credit Lucky.
[13] Some £38,859,782.84 was paid into Mr Dong's personal accounts during 2005–06. Of this £194,658 was not transferred to Credit Lucky. Similarly, other than £105,538, which was retained, the balance of the £8,135,987.35 paid into Ms Fang's personal accounts was transferred to Credit Lucky.
[14] In 2006–07 many of Mr Dong's and Ms Fang's personal accounts were closed. However, Mr Dong retained £49,765 of the total deposits of £52,715 to his personal accounts. £34,277.67 was deposited in Ms Fang's personal account of which £31,120 was retained.
[15] In 2007–08 the amount deposited in Mr Dong's personal account was £87,000 of which £13,932 was retained. For Ms Fang the 2007–08 figures are £125,233 and £114,901 respectively.
[16] For 2008–09 of the total amount of £570,989 deposited in Mr Dong's personal accounts £569,823 was not transferred to Credit Lucky. The total amount deposited in Ms Fang's personal accounts that year was £14,131.71 of which £13,240 was retained.
[17] The sums not transferred to Credit Lucky were used by Mr Dong and Ms Fang for their personal and private expenditure. This included the purchase of a Mercedes car on 27 June 2005 for £18,500; the acquisition of the leasehold of a property in the Old Kent Road, London for the restaurant business Yummy Yummy at a cost of £25,000 on 1 December 2005; and the purchase of a property in Couldsdon (the “Property”) on 10 September 2008 by Mr Dong for £512,500 with the apparent assistance of a mortgage of £299,001, obtained from the Bank of Ireland, which was redeemed in full on 8 December 2008. A payment of £234,999 from Mr Dong's personal account on 29 August 2008 appears to relate to the Property as does a payment of £315,737.45 used to redeem the mortgage.
[18] Following its purchase, the original Property was demolished and completely rebuilt and extravagantly fitted out at a cost of several hundred thousand pounds. The re-built Property, which was valued at up to £750,000 in November 2012, has marble floors and walls throughout the first floor and a purpose built entertainment room complete with a home cinema in the basement. It is the residence of Mr Dong and Ms Fang and their children.
[19] Funds for the purchase of the Property were received into Mr Dong's bank account from Chinese sources. Mr Dong says that these were “investors” who transferred funds into Cohl Limited, a company of which he is the sole shareholder and director, that was involved in the demolition and reconstruction of the Property. Mr Dong explained that these investors intend to make a profit on the sale of the Property to which he would...
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