HMRC v Livewire and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 February 2008 |
| Date | 15 February 2008 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
Calltell Telecom Ltd; Opto Telelinks (Europe) LtdVATNo. 20,266; [2007] BVC 2,544
Dragon Futures LtdVATNo. 19,831; [2007] BVC 4,031
Khan (t/a Greyhound Dry Cleaners) v R & C CommrsVAT[2006] BVC 336
Kittel v Belgium; Belgium v Recolta Recycling SPRLECASECAS(Joined Cases C-439/04 and C-440/04) [2006] ECR I-6161
Optigen Ltd, Fulcrum Electronics Ltd and Bond House Systems Ltd v C & E CommrsECASECASECASVAT(Joined Cases C-354/03, C-355/03 and C-484/03) [2006] BVC 119
R (on the application of Just Fabulous (UK) Ltd) v R & C CommrsVAT[2007] BVC 490
R (on the application of Teleos plc) v C & E CommrsVAT[2005] BVC 93
Secretary of State for the Home Department v RehmanUNK[2002] 1 All ER 122
Input tax - MTIC fraud - Contra-trading - Whether the appellant knew or ought to have known about the fraud.
The issue was whether the appellant knew, or ought to have known, that in the course of its trading it was involved in Missing Trader Intra-Community (MTIC) fraud transactions.
The appellant carried on business from June 2003 as a dealer in mobile telephones. Until March 2006, the appellant's input tax claims were met in full by the commissioners. In April 2006, it carried out 14 deals, buying goods from two suppliers and selling them to four customers. On submission of a claim by the appellant for input tax credit on the purchases, the commissioners withheld more than £2m, without making a decision to refuse the claim, while they undertook an "extended verification" of the transactions. The appellant sought judicial review of the commissioners' actions but, two days before the hearing, the commissioners notified the appellant of their decision to disallow the input tax claim. This decision was made on the basis that the transactions formed part of an overall scheme to defraud the revenue involving contra-trading between supply chains and that the appellant knew or should have known this and deliberately or recklessly ignored factors indicating that the transactions formed part of a fraudulent scheme.
There was common ground that neither the appellant nor its suppliers had failed to account properly for the VAT they owed in respect of the 14 deals. However, the commissioners alleged that fraudulent evasion had taken place in other supply chains of which the appellant was not part but which were connected to the appellant's supply chains and that the chains taken together formed part of an overall scheme to defraud the revenue. The suspect transactions were in supply chains containing two traders, Uni-Brand (Europe) Ltd and Sygnet Computing Ltd, which were also in the appellant's supply chains as exporter or importer, although there was no allegation of fraud in relation to transactions in those chains.
The commissioners' argued that Uni-Brand and Sygnet were involved in the fraud by covering up missing traders' fraudulent activities through entering into import transactions to offset the net input tax position on export transactions. In the tribunal's view, it was difficult to know whether the import transactions were carried out to conceal the fraud by missing traders and it was, therefore, necessary to have cogent evidence to show that the transactions were fraudulent rather than innocent. In this case, the evidence fell short of being cogent and neither Uni-Brand nor Sygnet could be regarded as knowing parties to a fraud; the only fraud was that committed by the missing traders. The appellant contended that in view of this finding, it could not have known of the fraud. Since the missing traders took part in a chain connected to the appellant only via Uni-Brand and Sygnet, and it was the tribunal's view that those companies were not involved in the fraud, then, according to the appellant, it must follow that it was not in a position to know about the fraudulent transactions.
The commissioners conceded that there was no evidence to show the appellant knew about a fraud. However, they claimed there were several reasons why the appellant knew or should have known that the 14 transactions were part of transaction chains which were connected to fraud, including that: (1) the pattern of the deals suggested they were contrived; (2) the appellant made onward supplies to customers known to be involved in fraud; (3) all 14 deals took place within three days; (4) the appellant was paid by its customers before it paid its suppliers but held title to the phones, which was too good to be true; (5) in the case of all 14 deals, the phones were exported to a warehouse in the Netherlands although none of the customers was based there; (6) there were flaws in the appellant's due diligence checks and (7) many of the companies involved in the transactions, including the appellant, had bank accounts with First Curaçao International Bank, which was the subject of a criminal investigation in relation to money laundering.
Although the tribunal identified some unusual features in the evidence, it concluded that, taken separately or together, they did not come anywhere near to indicating that the appellant had knowledge, or means of knowledge, of fraud by the missing traders. Even if the tribunal had found that Uni-Brand and Sygnet were involved in the fraud, which it did not, the position would have been the same. Accordingly, since fraud was perpetrated by the missing traders only, the appellant could not have known about the fraud.
Held, allowing the company's appeal:
1. Neither Uni-Brand nor Sygnet was knowingly involved in the fraudulent activity identified by the commissioners; only the missing traders were fraudulent.
2. Nothing in the evidence indicated that the appellant had knowledge, or means of knowledge, of the fraud.
1. This is an appeal by Livewire Telecom Limited against a decision by the Respondents ("Customs") contained in a letter of 4 December 2006 refusing to repay input tax of an amount that has been reduced to £2,148,343.02 in respect of 14 transactions in period 04/06. The Appellant was represented by Mr David Scorey and Mr Jern-Fei Ng, and Customs by Mr Jeremy Benson QC and Mr David Bedenham.
2. The decision appealed against is to the effect that the Appellant knew or ought to have known it was involved in MTIC [Missing Trader Intra-Community (fraud)] transactions. The issue in this appeal is whether that decision is correct.
3. There was an agreed statement of facts as follows:
The Appellant
(1) The Appellant was incorporated on 1 April 1999 and has, since June 2003, been trading in mobile telephone handsets in the course of business. Approximately 99% of the Appellant's trades are in relation to new mobile telephones (as opposed to used or re-conditioned mobile telephones).
(2) The Appellant is registered for VAT in the United Kingdom (VAT registration number 744 3743 25) and accounts for VAT on a monthly basis.
(3) The sole director and shareholder of the Appellant is Mr Richard Gallant, who is responsible for running the Appellant's business on a day-to-day basis.
(4) From the time of commencement of trading up until March 2006, the Appellant has had each and every one of its claims for recovery of input tax credit met by the Respondents ("Customs").
The deals
(5) The Appellant carried out 14 deals in April 2006.
(6) The Appellant bought goods from only 2 suppliers during this period:
-
(a) Insignia Telecom (UK) Ltd ("Insignia"); and
-
(b) Primeline (Europe) Ltd ("Primeline").
(7) The Appellant sold goods to only 4 customers during this period:
-
(a) Brianstom Investment Ltd ("Brianstom");
-
(b) Compagnie Internationale de Paris ("CIP");
-
(c) Lavina Trading Ltd ("Lavina"); and
-
(d) MK Digital World (Cyprus) Ltd ("MK Digital World").
The decision
(8) On 3 May 2006, the Appellant submitted to Customs a claim for recovery of input tax for the sum of £2,158,459 in respect of the April 2006 period. Notwithstanding this, Customs have subsequently repaid certain amounts of input tax incurred (namely that in relation to freight and overhead charges) amounting to the sum of £10,115.98. The balance of which recovery is being sought is now £2,148,343.02.
(9) Upon receipt of the claim for recovery of input tax, Customs embarked on an "extended verification" exercise which lasted for approximately 7 months.
(10) During the course, and prior to the completion, of Customs' extended verification exercise, judicial review proceedings were brought by the Appellant which subsequently came to an end when the decision to deny recovery of input tax was communicated to the Appellant 2 days prior to the hearing of the application for judicial review.
(11) By way of a letter dated 4 December 2006 from Mrs Sue Bransgrove ("the Decision"), Customs informed the Appellant that they had made the decision to deny recovery of the input tax that was being sought on the following grounds:
I am satisfied that the transactions set out in the attached appendix form part of an overall scheme to defraud the revenue. I am also satisfied that there are features of those transactions, and conduct on your part, which demonstrate that you knew or should have known that this was the case, in that you either deliberately, or recklessly, ignored factors which indicated that these transactions may have formed part of such an overall scheme.
Customs' pleaded case
(12) By way of a Statement of Case dated 12 January 2007 ("the Statement of Case"), Customs provided details of their case that the transactions entered into by the Appellant in April 2006 formed part of an overall scheme to defraud the Revenue.
(13) It is common ground between the parties that neither the Appellant, nor its suppliers had failed to account properly for the VAT they owed in respect of 14 deals which had been entered into. Customs accept that there were no UK tax losses in the Appellant's direct supply chains.
(14)...
To continue reading
Request your trial
-
Mobilix Ltd ((in Administration)) v HM Revenue and Customs; Blue Sphere Global Ltd v Same; Calltel Telecom Ltd and Another v Same
... ... The litigation arises out of the refusal of the appellants, the Commissioners for Her Majesty's Revenue and Customs (“HMRC”), to repay to the respondent, Blue Sphere Global Limited (“BSG”), input tax amounting to something over £1.1 million claimed in its April ... 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 ... ...
-
Mobilix Ltd ((in Administration)) v HM Revenue and Customs; Blue Sphere Global Ltd v Same; Calltel Telecom Ltd and Another v Same
...define the nature of the connection or link which is required between the impugned transaction of the taxpayer and the fraud. In HMRC v Livewire and Olympia [2009] EWHC 15 Lewison J has analysed subsequent decisions of the Court of Justice which have expressed the test enunciated in [61] of......
-
Red 12 Trading Ltd v HM Revenue and Customs
...form the basis of the concepts of “supply of goods effected by a taxable person acting as such” and “economic activity”. 22 In HMRC v Livewire Telecom Ltd [2009] EWHC 15, para 76 Lewison J summarised the state of European jurisprudence contained in Kittel, together with Teleos Plc v HMRC [2......
-
NG International Ltd v R & C Commissioners
... ... Red 12 Trading Ltd v R & C CommrsVAT [2010] BVC 166 R & C Commrs v Livewire Telecom LtdVAT [2009] BVC 172 Value added tax - Input tax - Missing trader ... fraud could have been detected by due diligence - Alleged reliance on representations by HMRC - Whether First-tier Tribunal misdirected itself - Taxpayer's appeal dismissed. This was ... connected to (or involved in) this particular form of missing trader fraud as opposed to another form. 32.It follows that we do not accept that the FTT made any error of law in these ... ...