HMRC v Livewire and Another
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR. JUSTICE LEWISON,Mr. Justice Lewison |
| Judgment Date | 16 January 2009 |
| Neutral Citation | [2009] EWHC 15 (Ch) |
| Docket Number | Case No: CH/2008/APP/0116 |
| Court | Chancery Division |
| Date | 16 January 2009 |
[2009] EWHC 15 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(ON APPEAL FROM THE VAT AND DUTIES TRIBUNAL)
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Lewison
Case No: CH/2008/APP/0116
CH/2008/APP/0252
Mr Rupert Anderson QC, Mr Philip Moser and Mr David Bedenham (instructed by The Solicitors for HMRC and Howes Percival LLP) for the Appellants.
Mr David Scorey, Mr Jern-Fei Ng (instructed by Malletts Solicitors) for the First Named Respondent.
Mr. Kieron Beal, Ms Eleni Mitrophanous (instructed by BDO Stoy Hayward) for the Second Named Respondent.
Hearing dates: 15,16,17,18 December 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Lewison:
Introduction
VAT fraud is a serious problem for national taxing authorities throughout the European Union. VAT fraud can take a number of forms. The particular form of fraud with which these appeals is concerned is known generically as missing trader intra-community fraud or MTIC fraud. This is a description coined by HMRC, but is generally used by those who specialise in this area. Even this generic type of fraud can itself take different forms:
i) In its simplest form it is known as an acquisition fraud. A trader imports goods from another Member State. No VAT is payable on the import. He then sells on those goods to a domestic buyer and charges VAT. He dishonestly fails to account for the VAT to HMRC and disappears. The importer is labelled a “missing trader” or “defaulter”.
ii) The next level of sophistication involves both an import and an export. A trader once again imports goods from another Member State. No VAT is payable on the import. Typically the goods are high value low volume goods, such as computer chips or mobile phones. He then sells on those goods to a domestic buyer and charges VAT. He dishonestly fails to account for the VAT to HMRC and disappears. The domestic buyer sells on to an exporter at a price which includes VAT. The exporter exports the goods to another Member State. The export is zero-rated. So the exporter is, in theory, entitled to deduct the VAT that he paid from what would otherwise be his liability to account to HMRC for VAT on his turnover. If he has no output tax to offset against his entitlement to deduct, he is, in theory, entitled to a payment from HMRC. Thus HMRC directly parts with money. Sometimes the exported goods are re-imported and the process begins again. In this variant the fraud is known as a carousel fraud. There may be many intermediaries between the original importer and the ultimate exporter. These intermediaries are known as “buffers”. The ultimate exporter is labelled a “broker”. A chain of transactions in which one or more of the transactions is dishonest has conveniently been labelled a “dirty chain”. Where HMRC investigate and find a dirty chain they refuse to repay the amount reclaimed by the ultimate exporter.
iii) In order to disguise the existence of a dirty chain, fraudsters have become more sophisticated. They have conducted what HMRC call “contra-trading”. The trader who would have been the exporter or broker at the end of a dirty chain, with a claim to repayment of input tax, himself imports goods (which may be different kinds of goods) from another Member State. Because this is an import he acquires the goods without having to pay VAT. This is the contra-trade. He sells on the newly acquired goods, charging VAT but this output tax is offset against his input tax, resulting in no payment (or only a small payment) to HMRC. The buyer of the newly acquired goods exports them and reclaims his own input tax from HMRC. Again there may be intermediaries or buffers between the contra-trader and the ultimate exporter. The fraudsters' hope is that if HMRC investigate the chain of transactions culminating in the export, they will find that all VAT has been properly accounted for. This chain of transactions has conveniently been called the “clean chain”. Thus the theory is that an investigation of the clean chain will not find out about the dirty chain, with the result that HMRC will pay the reclaim of VAT on the export of the goods which have progressed through the clean chain. I should add that HMRC do not agree with the label “clean chain” because they say that both chains are part of an overall fraudulent scheme.
The present case concerns two appeals against decisions of the VAT and Duties Tribunal, in each case chaired by Dr John Avery Jones CBE. In each case the taxable person appealed against the refusal by HMRC to repay input tax reclaimed on an export of goods to another Member State. One of the appeals was that of Livewire Telecom Ltd (“Livewire”) which was in the position of the ultimate exporter of goods in a clean chain. The other was that of Olympia Technology Ltd (“Olympia”) which was in the position of the ultimate exporter in a dirty chain in relation to most of the exports and in the position of the ultimate exporter in a clean chain for three of them. In each case the Tribunal allowed the taxable person's appeal. HMRC appeal to this court. The appeal is restricted to questions of law. The facts are for the Tribunal alone.
In essence the question of law is: in what circumstances may HMRC lawfully refuse to make a payment of input VAT to an exporter who is not himself dishonest and does not have actual knowledge of a scheme to defraud the Revenue? The question has to be put in that way because the Tribunal in each case found as a fact that the taxable person was not dishonest and had no actual knowledge of such a scheme. HMRC cannot appeal against that finding of fact.
There is, however, a prior question. Are HMRC entitled to raise this question at all in view of the way that their case was conducted before the Tribunal? Livewire and Olympia say that in each appeal the only case they had to meet was that they were dishonest co-conspirators in an elaborate tax fraud; and that having failed to establish that case HMRC cannot now seek to establish an entitlement to refuse to repay input tax on a different ground.
The domestic legislation
VAT is charged in accordance with the Value Added Tax Act 1994 (“ VATA”) and regulations made under it. The VATA gives effect to the Sixth VAT Directive (77/388/EEC). Section 1 of the VATA says that VAT is charged, in accordance with the provisions of the Act, on the supply of goods in the United Kingdom; on the acquisition in the United Kingdom from other Member States of any goods; and on the importation of goods from places outside the Member States. Section 1(2) says that liability to account for VAT on the supply of goods within the United Kingdom is that of the supplier. Section 4 of the VATA provides that VAT is charged on any taxable supply of goods made by a taxable person in the course or furtherance of a business carried on by him.
Section 24 of the Act defines input tax. It provides as follows:
“(1) Subject to the following provisions of this section, 'input tax', in relation to a taxable person, means the following tax, that is to say –
(a) VAT on the supply to him of any goods or services;
(b) VAT on the acquisition by him from another Member State of any goods; and
(c) VAT paid or payable by him on the importation of any goods from a place outside the Member States,
being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.”
Section 25(1) sets out the obligation imposed on a taxable person to account for and pay VAT in respect of supplies made by him for each prescribed accounting period. Section 25 also provides:
“(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.
(3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a 'VAT credit'.
…
(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations..”
Section 26 provides:
“(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.
(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business –
(a) taxable supplies;
(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom.”
Section 30(8) provides:
“Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where:-
(a) The Commissioners are satisfied that the goods have been or are to be exported to a place outside the Member States or that the supply in...
To continue reading
Request your trial
-
Universal Enterprises (EU) Limited v The Commissioners for HM Revenue and Customs
...(see Boden v Société Générale [1993] 1 WLR 509 (Note) per Peter Gibson J). 38. He also referred to HMRC v Livewire Telecom Ltd [2009] EWHC 15 (Ch), [2009] STC 643 where Mr Justice Lewison had drawn attention to several other material differences between the French text and the English in pa......
-
Red 12 Trading Ltd v HM Revenue and Customs
...C & E CommrsVAT [2005] BVC 128 R & C Commrs v Brayfal Ltd (unreported, CH/2008/App 082, Lewison J) R & C Commrs v Livewire Telecom LtdVAT [2009] BVC 172 Secretary of State for the Home Department v AFUNK [2009] UKHL 28 Value added tax - Input tax - Missing trader intra-Community (MTIC) frau......
-
Mobilix Ltd ((in Administration)) v HM Revenue and Customs; Blue Sphere Global Ltd v Same; Calltel Telecom Ltd and Another v Same
...of the ECJ were delivered in the former on 27th September 2007 and in the latter on 21st February 2008. In HMRC v Livewire Telecom Ltd [2009] STC 643 Lewison J suggested (paragraph 89) that in both Teleos and Netto the ECJ had narrowed the test formulated in Kittel. This was disputed befor......
-
Mobilix Ltd ((in Administration)) v HM Revenue and Customs; Blue Sphere Global Ltd v Same; Calltel Telecom Ltd and Another v Same
...White v White [2001] 1 WLR 481 paragraphs 16 and 17, 486 E-G). HMRC seeks to rely upon the views of Lewison J in Livewire and Olympia [2009] EWHC 15 (Ch) (§ 85) and Burton J in R (Just Fabulous) v HMRC [2008] STC 2123 (§ 45) that:- “The principle of legal certainty must be trumped by the......