Impact Contracting Solutions Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 February 2022 |
| Neutral Citation | [2022] UKFTT 47 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2022] UKFTT 47 (TC)
Judge Geraint Williams
First-tier Tribunal (Tax Chamber)
VAT – preliminary issue – whether Ablessio principle only applicable to party committing VAT fraud itself or also of application to a party who has facilitated VAT fraud of another party – applicable to both a party committing VAT fraud and a party facilitating VAT fraud – dishonesty of facilitating party not required – test is whether facilitating party knew or should have known it was facilitating VAT fraud
In Impact Contracting Solutions Ltd [2022] TC 08399 the FTT ruled that the Ablessio principle (an EU legal principle that persons can be deregistered for VAT if their VAT registration is being used for fraudulent purposes) applies to both persons who are committing VAT fraud and to persons who are facilitating fraud perpetrated by someone else, if the facilitating party knows or should have known in was facilitating fraud.
Impact Contracting Solutions Ltd (‘ICS’) was registered for VAT and operated in the ‘labour provision market’ (para. 2). HMRC deregistered the company for VAT on the grounds that its VAT registration was being used for fraudulent purposes. HMRC’s powers to deregister a person on these grounds derive from EU case law, specifically Ablessio (Case C-527/11) [2013] BVC 109.
Part of ICS’s case that it should not be deregistered on Ablessio grounds was that HMRC had not made a direct accusation that it itself was evading VAT. HMRC argued that its VAT registration was being used to facilitate VAT registration by other persons. As a preliminary matter the FTT was asked to consider the following questions in principle (para. 3):
Question 1
Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?
Question 2
If the principle in Ablessio does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:
- the facilitating party was itself dishonest; or
- the facilitating party knew that it was facilitating the fraud, and/or
- the facilitating party should have known that it was facilitating the fraud
The FTT comprehensively rejected ICS’s arguments. It (para. 106) ruled that:
Question 1
The principle in Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party.
Question 2
Simple facilitation by a party of the VAT fraud of another is not sufficient to apply the principle in Ablessio.
It is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.
The FTT considered the appellant’s arguments in detail and reached the expected conclusion. The decision provides a useful overview of the relevant EU case law and how it has been applied in other cases concerning deregistration. As this decision determined a preliminary issue, we wait to see whether the substantive underlying case will proceed to a hearing.
Comment by Sarah Kay, CTA, Senior Tax Writer at Croner-i.
Mr Tim Brown, counsel, instructed by Duncan Lewis Solicitors, appeared for the appellant
Mr Howard Watkinson, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Custom, appeared for the respondents
[1] On 17 July 2020 following a case management hearing the Tribunal directed that there be a preliminary issue hearing to determine the Valsts ieņēmumu dienests v Ablessio SIA (Case C-527/11) [2013] BVC 109 (“Ablessio”) argument that had arisen as a new ground of appeal. The Appellant, Impact Contracting Solutions Limited (“ICSL”) had appealed against the decision of the Respondents (“HMRC”) on 16 September 2019 to cancel ICSL's VAT registration number with immediate effect. The decision was made under the principle in Ablessio on the basis that HMRC considered that ICSL was principally or solely registered to abuse the VAT system by facilitating VAT fraud.
[2] By way of brief background, ICSL was incorporated and registered for VAT from 2015. ICSL operated in the labour provision market and its customers were temporary work agencies and its suppliers were approximately 3,300 mini umbrella companies (“MUCs”) which supplied labour. HMRC's basis for the assessment and deregistration was that the arrangements between ICSL and the MUCs were contrived with the effect that the MUCs failed to properly account for VAT on their supplies to ICSL.
[3] The preliminary issues to be determined are:
Question 1
Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?
Question 2
If the principle in Ablessio does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:
- the facilitating party was itself dishonest; or
- the facilitating party knew that it was facilitating the fraud, and/or
- the facilitating party should have known that it was facilitating the fraud?
[4] On exit day (31 January 2020), the UK ceased to be an EU Member State. There was then an implementation period (“IP”), during which the UK continued to be subject to EU law. The IP ended at 11pm on 31 December 2020 (“IP completion day”).
[5] The European Union (Withdrawal) Act 2018 (“EU(W)A 2018”) captures EU-derived rights and legislation that are retained in UK law after IP completion day, while the Taxation (Cross-border Trade) Act 2018 (“T(CbT)A 2018”) contains specific provisions on the continuing relevance of EU law to the UK's VAT rules. Section 42(4) T(CbT)A 2018 expressly confirms that the Halifax and Kittel principles continue to be relevant: “One of the consequences of the provision made by [EU(W)A 2018] is that the principle of EU law preventing the abuse of the VAT system (see, for example, the cases of Halifax and Kittel) continues to be relevant, in accordance with [EU(W)A 2018], for the purposes of the law relating to value added tax.”section 42(5) states: “Where the principal VAT directive remains relevant for determining the meaning and effect of the law relating to value added tax, that directive is to be read for that purpose in the light of the provision made by the implementing VAT regulation but ignoring such of its provisions as are excluded by regulations made by the Treasury by statutory instrument.”
[6] All references are to Directive 2006/112 (“PVD”) unless stated:
Art. 9
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
Art. 213(1)
Every taxable person shall state when his activity as a taxable person commences, changes or ceases.
Member States shall allow, and may require, the statement to be made by electronic means, in accordance with conditions which they lay down.'
Art. 214
1. Member States shall take the measures necessary to ensure that the following persons are identified by means of an individual number:
- every taxable person, with the exception of those referred to in article 9(2), who within their respective territory carries out supplies of goods or services in respect of which VAT is deductible, other than supplies of goods or services in respect of which VAT is payable solely by the customer or the person for whom the goods or services are intended, in accordance with articles 194 to 197 and article 199;
- every taxable person, or non-taxable legal person, who makes intra-Community acquisitions of goods subject to VAT pursuant to article 2(1)(b) and every taxable person, or non-taxable legal person, who exercises the option under article 3(3) of making their intra-Community acquisitions subject to VAT;
…
2. Member States need not identify certain taxable persons who carry out transactions on an occasional basis, as referred to in article 12.
Art.273
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the requirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
[7] On 14 March 2013 the Second Chamber of the ECJ gave judgment in a case where the Latvian tax authority refused to register Ablessio in the register of taxable persons subject to VAT. The Latvian tax authorities had refused to register Ablessio for VAT purposes on the grounds that the company “did not have the material, technical and financial capacity to carry out the declared economic activity, namely providing construction services”, at [9].
[8] The grounds relied upon by the Latvian tax authority were held not to be sufficient grounds for refusing registration:
[27] Consequently, Directive 2006/112, and particularly articles 213 and 214, preclude the tax authority of a Member State from refusing to assign a VAT identification number to applicants solely on the ground that they are not in a position to show that they...
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