Sintra Global Inc. and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 October 2022 |
| Neutral Citation | [2022] UKFTT 365 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 365 (TC)
Judge John Brooks, Gill Hunter
First-Tier Tribunal (Tax Chamber)
VAT – Excise Duties – Penalties – Whether second appellant ‘controlling mind’ of first appellant and another company – Whether alcohol diverted into and sold in the United Kingdom – Quantum of penalties and personal/directors liability notices – Appeals allowed.
In Sintra Global Inc & Anor [2022] TC 08615 the FTT allowed an appeal against penalties for VAT and excise duty underpayments and against a personal liability notice issued to the company director.
HMRC considered that the appellant company (“Global”) had, due to its involvement in inward diversion fraud, underpaid excise duty on alcoholic liquor sold in the UK and failed to register for VAT in respect of sales of goods in the UK. Penalty assessments were issued in respect of the duty underpayment and failure to register and personal liability notices were issued against the second appellant (“Mr M”) who, HMRC argued, was Global’s controlling mind.
Mr M was also appealing against a director’s liability notice issued against him in relation to another company’s (“SA’s”) failure to register for VAT.
The FTT was presented with over 180,000 pages of evidence (para. [8]) and heard evidence from witnesses which attended the hearing. The FTT set out its findings of fact over para. [17]–[564].
The FTT’s findings of fact demonstrate that the penalty assessments which were the subject of this appeal were issued as part of a widespread investigation into alcohol smuggling by HMRC during which the activities of many different companies and individuals were investigated. In the course of these investigations Mr M had been interviewed more than once, including under police caution.
In relation to Global, Mr M argued that he was not its controlling mind, he had merely set the company up for another person. The FTT concluded that he was company director and fully aware of its activities. However, the FTT concluded that HMRC had not demonstrated that Global owned the smuggled goods and, therefore, it was not possible for it to determine that it should have registered for VAT (para. [643]). The appeals against assessments and personal liability notices issued in respect of Global’s alleged involvement in smuggling and fraud were allowed.
However, the FTT did conclude that SA had supplied alcohol in the UK (para. [645]). Although this meant that Mr M was potentially subject to a director’s liability notice, the FTT was extremely critical of HMRC’s approach. It found that in calculating the assessment important documents were overlooked (para. [663]) and therefore the underlying assessment could not be said to be a best judgment assessment as VATA 1994, s. 73 requires. As the underlying assessment against SA would in all likelihood have been set aside had it been appealed, Mr M’s appeal against the director’s liability notice was allowed (para. [664]).
HMRC will be disappointed that the appeal was dismissed due to avoidable shortcomings in the case against the appellants. Although the FTT was “not particularly impressed” by the evidence provided by the appellant director (para. [647]), the same can be said of its view of HMRC. The FTT referred to the “combative, evasive and obstructive nature of how [the assessing officer] gave evidence” (para. [663]) and at the start of the decision provided many examples of HMRC’s failure to properly distinguish between the companies involved and their directors (see e.g. para. [53]).
The FTT concluded “had HMRC, and [the assessing officer] in particular, taken a less myopic approach to this case, particularly with regard to [the director], from the commencement of their investigations we may well have reached entirely different conclusions” (para. [667]).
Comment by Sarah Kay, Lead Tax Writer at Croner-i.
Alistair Webster KC and Simon Gurney, instructed by Freeths LLP appeared for the appellant
John McGuinness KC, Ben Hayhurst and Gerwyn Wise, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents
[1] These are the appeals of the first appellant, Sintra Global Inc (“Global”) a Panamanian registered company, and the second appellant, Parul Malde (“Mr Malde”), against decisions of HM Revenue and Customs (“HMRC”) relating to non-payment of VAT, excise duty and associated penalties, including personal liability notices (“PLNs”) and a director's liability notice (“DLN”), which HMRC contend, and the appellants dispute, have arisen as a result of inward diversion fraud, ie the fraudulent diversion of alcohol into the United Kingdom from the European Union and its subsequent sale in the United Kingdom, by Global and a company which was incorporated in Belize, Sintra SA (“SA”), both of which, HMRC say, were controlled by Mr Malde.
[2] In particular, Global appeals against:
- a decision of HMRC, contained in a letter dated 16 July 2015, that it was liable to be registered for VAT between 1 April 2012 and 30 June 2015 under s 3 and Schedule 1 of the Value Added Tax Act 1994 (VATA), which is the appeal under reference TC/2015/04975; and
- a penalty assessment issued on 16 July 2015, under s 123 and Schedule 41 of the Finance Act 2008 in the sum of £8,698,035.42 (the Company Penalty) in relation to the failure of Global to notify HMRC of its liability to register for VAT for the period from 1 April 2012 to 30 June 2014, the appeal under reference TC/2015/04972.
[3] Mr Malde appeals against
- a Personal Liability Notice (PLN) issued on 16 July 2015 in respect of the Company Penalty, pursuant to Schedule 41 of the Finance Act 2008, making Mr Malde 100% liable for the Company Penalty, the appeal under reference TC/2015/04978;
- a PLN issued on 11 October 2017, pursuant to Schedule 24 of the Finance Act 2007, in the alternative to the Company Penalty, for an inaccuracy in Global's VAT return submitted on 12 October 2016, the appeal under reference TC/2017/08345;
- a PLN issued on 21 December 2017, pursuant to Schedule 41 of the Finance Act 2008, making Mr Malde 100% liable for a company penalty issued against Global on 21 December 2017 in the sum of £13,830,324 for the handling of goods subject to unpaid excise duty, the appeal under reference TC/2018/01710; and
- a DLN, dated 8 December 2016, issued pursuant to s 61 VATA, making Mr Malde 100% liable for the payment of a civil evasion penalty under s 60 VATA, in the sum of £11,162,1801, charged against Sintra SA (SA) as a result of its dishonest failure to notify HMRC of its liability to register for VAT and submit returns, the appeal under reference TC/2017/0711.
[4] It is agreed that the following issues arise in these appeals:
- Whether Mr Malde was the controlling mind behind SA and Global;
- Whether SA and Global diverted alcohol into the United Kingdom and sold the stock in the United Kingdom thereby giving rise to VAT and excise liabilities (it is not disputed that SA and Global were not VAT registered in the United Kingdom and did not account for any VAT or any excise duty);
- The quantum of the assessments, the Company penalty, the PLNs and DLN; and
- Whether the PLN in respect of excise duty (see paragraph 3(3), above) was issued in time.
[5] Alistair Webster KC and Simon Gurney appeared for the Appellants. HMRC were represented by John McGuinness KC, Ben Hayhurst and Gerwyn Wise.
[6] While we are grateful for, and have carefully considered, their very thorough written and oral submissions we have not found it necessary to refer to each and every argument advanced in reaching our conclusions.
[7] Before considering the evidence, and to better understand our findings of fact, it is convenient at this stage to describe the fraud that HMRC contend has occurred in this case, inward diversion fraud. In doing so we gratefully adopt the succinct and helpful description of the Tribunal (Judge Falk, as she then was, and Mr Simon) in Dale Global Ltd [2018] TC 06577:
[50] In outline, alcohol diversion fraud is used to evade excise duty and VAT through abuse of the Excise Movement and Control System (“EMCS”), which permits authorised warehouse keepers to move excise goods from warehouse to warehouse within the EU on behalf of account holders, in duty suspense. Any movement requires the generation of an Administrative Reference Code (“ARC”) within the EMCS, which must travel with the goods. The system has operated in electronic form since January 2011. An ARC number will typically last for a few days, and expires when the load is recorded on the system by the receiving warehouse as having been being delivered.
[51] Inward diversion fraud, which is the type of fraud potentially relevant in this case, operates as follows. Alcohol originating in the UK is supplied under duty suspension to tax warehouses on the near continent, principally in France, the Netherlands and Belgium (what follows uses the example of France). Once in the tax warehouse they will usually change hands a number of times and will often be divided up before being reconstituted. A supply chain is set up with a purported end customer based in France. Some of the goods will be consigned back to the UK in duty suspense using an ARC number. This is the “cover load”. Within the lifetime of the ARC number further consignments of goods of the same description will purportedly be released for consumption in France, attracting duty at low French rates, but will in fact be smuggled to the UK using the same ARC number. These are the “mirror” loads, and this will carry on until the ARC number expires or one of the loads is intercepted by Customs, following which a new ARC number will be generated in a similar manner.
[52] Mirror loads are typically sold immediately following their arrival in the UK for cash. This process is known as “slaughtering”. The UK customers may...
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