Regent Commodities v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 June 2011 |
| Neutral Citation | [2011] UKUT 259 (TCC) |
| Date | 28 June 2011 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2011] UKUT 259 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Newey J.
James K Pickup QC (instructed by Bark & Co) for the appellant.
Christopher Foulkes and Karen Robinson (instructed by the Solicitor to HM Revenue and Customs) for the respondents.
The following cases were referred to in the judgment:
Edwards v Bairstow ELRTAX[1956] AC 14; (1956) 36 TC 207
Euro Stock Shop Ltd v R & C Commrs VAT[2010] UKUT 259 (TCC); [2010] BVC 1,539
Georgiou (t/a Marios Chippery) v C & E Commrs VAT[1996] BVC 236
Honeyfone Ltd VATNo. 20,667; [2008] BVC 2,394
Kittel v Belgium; Belgium v Recolta Recycling SPRL ECASECASVAT(Joined Cases C-439/04 and C-440/04) [2008] BVC 559; [2006] ECR I-6161
Mobilx Ltd v R & C Commrs UNKVAT[2010] EWCA Civ 517; [2010] BVC 638
Red 12 Trading Ltd v R & C Commrs UNKVAT[2009] EWHC 2563 (Ch); [2010] BVC 166
Secretary of State for Trade and Industry v Bairstow UNK[2003] EWCA Civ 321; [2004] Ch 1
Value added tax - Input tax - Repayment claim - Missing trader intra-Community (MTIC) fraud - Contra-trading - Whether taxpayer knew or should have known that transactions connected with fraud.
This was an appeal by the taxpayer against a decision of the First-tier Tribunal ([2010] UKFTT 68 (TC); [2010] TC 00380) that HMRC were justified in denying the taxpayer's input tax claim because it knew, or should have known, that the tax in question arose from transactions connected with the fraudulent evasion of VAT.
In 2005 the taxpayer was acquired by an individual, "B", who became its sole director. The tribunal found that B had agreed to buy the taxpayer for the account it had with a Dutch Antilles bank, "FCIB". At the time, most wholesale trade in mobile phones and central processing units (CPUs) was carried out using accounts which traders held with FCIB. The taxpayer began trading in mobile phones and CPUs in January 2006, concluding two transactions that month. Since the goods were, in each case, purchased within the UK and then exported, the taxpayer sought repayment of the input tax on its acquisitions. That claim was met on a "without prejudice" basis.
In the quarter to the end of April 2006, the taxpayer entered into 16 transactions in which it both bought and sold goods within the UK ("buffer" deals) and a slightly larger number of transactions in which it bought goods in the UK and then exported them ("broker" deals). Fifteen of the broker deals dated from April, and they all involved mobile phones or CPUs which had previously been imported into the UK from elsewhere in the EU. In all but two of the 15 transactions, the taxpayer had purchased direct from the importer. In every case, the taxpayer received and made payments through its account with FCIB.
In May 2006 the taxpayer submitted its VAT return for the quarter to the end of the preceding month. The return sought repayment of input tax of £3,083,775.37. The return was selected for in-depth verification, and in June 2007 the taxpayer was notified by HMRC that they rejected its claim for £2,027,626.75 in respect of the 15 broker deals in April. The amount of the input tax denied was later increased to £2,107,822.50.
The taxpayer appealed but the First-tier Tribunal accepted HMRC's case that the transactions at issue arose from missing trader intra-Community VAT fraud of the type known as "contra-trading". HMRC contended that each of the four importers of the goods, which were later supplied to the taxpayer, was a contra-trader, knowingly offsetting its input tax claims in deal chains involving a fraudulent defaulter ("dirty" chains) against its output tax liability in respect of acquisition deals in "clean" chains in which there appeared to be no tax loss. The tribunal concluded that HMRC had established that there were fraudulent tax losses in the deal chains of the alleged contra-traders. There was a connection between the transactions in respect of which the taxpayer sought input tax credit and those tax losses and, in all the circumstances, the taxpayer, through B, knew or ought to have known at the time of entering into each transaction that it was connected to a fraudulent tax loss ([2010] UKFTT 68 (TC); [2010] TC 00380).
The taxpayer appealed contending that the tribunal had erred in law in its interpretation of the appropriate test for denying an entitlement to claim input tax; and had reached conclusions that no reasonable tribunal, properly directing itself in law, could have reached.
Held, dismissing the appeal:
1.The tribunal had approached the case on the footing that a trader could be denied the right to deduct input tax if he knew or should have known that it was more likely than not that his transactions were connected with fraud. While the tribunal's analysis accorded with the case law as it stood at the time of the hearing, it was not consistent with the subsequent decision of the Court of Appeal in Mobilx Ltd v R & C Commrs [2010] EWCA Civ 517; [2010] BVC 638.
2.However, the fact that the tribunal's understanding of the law had proved erroneous was unimportant. The tribunal had asked itself whether the taxpayer knew or should have known that each of its transactions was connected to a fraudulent tax loss, not whether the taxpayer knew or should have known that the transactions were likely to be so connected. Moreover, the tribunal determined the case on the basis of the taxpayer's actual knowledge of a connection with VAT fraud, not on the footing that the taxpayer knew that there was probably such a connection. In the circumstances, it could not matter that the tribunal understood the law to be that HMRC could deny an input tax claim if the trader merely knew that fraud was likely. It followed that the tribunal's decision was not vitiated by its assessment of the relevant legal principles.
3.There was clearly evidence to support the tribunal's conclusion that the importers knew that the schemes in which they were involved were linked to fraud. Even though the importers had not been present before the tribunal, the tribunal was entitled to determine issues as to their knowledge, for the purpose of the proceedings before it, on the available evidence. The tribunal's conclusions would not be binding, or possibly even admissible, in any proceedings to which the importers might themselves be parties.
4.The tribunal's reasoning in its overall finding of the taxpayer's actual knowledge through B was cogent and compelling. In any case, for the taxpayer to upset the finding of actual knowledge, it had to do more than show that there were counter-arguments or that the tribunal could potentially have arrived at a different conclusion. The question was whether the tribunal was entitled to make a finding of actual knowledge and in this case it plainly was. There was certainly evidence to support that conclusion, and the conclusion was not contrary to the evidence. Furthermore, since the tribunal had been entitled to conclude that the taxpayer had actual knowledge of the connection with fraud, it was immaterial what information might have been yielded by better due diligence.
1.The issue in this case is whether the Revenue and Customs Commissioners (HMRC) were justified in denying the entitlement of the appellant, Regent Commodities Ltd (Regent), to deduct input tax in the sum of £2,107,822.50. The basis on which HMRC denied Regent's input tax claim was that the input tax in question arose from transactions connected with the fraudulent evasion of value added tax (VAT) and that Regent knew or should have known of this fact.
2.The First-tier Tribunal (Judge David Demack and Miss Susan Stott FCA CTA) decided in HMRC's favour ([2010] UKFTT 68 (TC); [2010] TC 00380). Regent, however, appeals against the Tribunal's decision.
3.In late 2005, Regent was acquired by Mr Andrew Belfield, who became the company's sole director. The Tribunal found that Mr Belfield agreed to buy Regent for the account it had with First Curacao International Bank (FCIB), a Dutch Antilles bank. At the time, most wholesale trade in mobile phones and central processing units (CPUs) was carried out using accounts which traders held with FCIB.
4.Regent began trading in mobile phones and CPUs in January 2006, concluding two transactions that month. Since the goods were, in each case, purchased within the United Kingdom and then exported, Regent sought repayment of the input tax on its acquisitions. In March 2006, Regent was informed by HMRC that its repayment claim would be met, but that repayment would be on a "without prejudice" basis.
5.Mr Belfield introduced £15,000 of his own money into Regent. A company called Marldon Corporation Ltd (Marldon) agreed to lend money as "transactional finance" for Regent, but the sums borrowed had been repaid in full by March 2006. Mr Belfield subsequently obtained finance from Lorimer Holding and Finance Ltd (Lorimer) and Global Financial Services Management Limited (or Global Financial Services Limited) (Global). Both companies were registered in the British Virgin Islands, but Global had an address in Hong Kong. Lorimer lent Mr Belfield £250,000, and Global advanced £1.5 million to Regent.
6.In the quarter to the end of April 2006, Regent entered into 16 transactions in which it both bought and sold goods within the UK ("buffer" deals) and a slightly larger number of transactions in which it bought goods in the UK and then exported them ("broker" deals). 15 of the broker deals dated from the April, and all of these involved mobile phones or CPUs which had previously been imported into the UK from elsewhere in the European Union. With all bar two of the 15 transactions, Regent purchased direct from the importer. The importers were David Jacobs UK Ltd (David Jacobs), S&R International Ltd (S&R), Epinx Ltd (Epinx) and Svenson Commodities Ltd (Svenson). Regent dealt with only the first three of these. It purchased the goods which...
To continue reading
Request your trial
-
JJ Wholesale Ltd
...and its immediate counterparty. Such an approach has, in HMRC's view been endorsed by Newey J in Regent Commodities Ltd v R & C CommrsVAT[2011] BVC 1650 at para. 46. At that paragraph of the judgment Newey J was dealing with two types of evidence of the wider circumstances to that Appellant......
-
The Commissioners for Her Majesty's Revenue and Customs v Pacific Computers Limited
...Among that case law, to which the FTT made no express reference, was Regent Commodities Ltd v Revenue and Customs Commissioners [2011] STC 1964 where, in dealing with two particular types of evidence, namely documentation that proved an overall contra-trading scheme and evidence of circular......
-
The Commissioners for HM Revenue and Customs v Pacific Computers Limited
...Among that case law, to which the FTT made no express reference, was Regent Commodities Ltd v Revenue and Customs Commissioners [2011] STC 1964 where, in dealing with two particular types of evidence, namely documentation that proved an overall contra-trading scheme and evidence of circular......