Tricor Plc v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 August 2016 |
| Neutral Citation | [2016] UKUT 362 (TCC) |
| Date | 03 August 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Hon Mr Justice Morgan, Judge Colin Bishopp
Mr Ian Bridge, counsel, instructed by Morgan Rose, appeared for the appellant
Mr Jeremy Benson QC and Mr Christopher Foulkes, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – MTIC appeal – Finding of actual knowledge of connection of appellant's transactions with fraud – Whether HMRC's case adequately pleaded – Yes – Whether allegations fairly put to appellant's witness – Yes – Whether First-tier Tribunal's conclusions open to it – Yes – Company's appeal dismissed.
The Upper Tribunal (UT) dismissed the company's appeal against the decision of the First-tier Tribunal (FTT) ([2014] TC 03380) that the taxpayer knew or ought to have known that certain transactions were connected with fraud.
In this case on missing trader intra-Community (MTIC) fraud, the company unsuccessfully appealed from the FTT regarding the facts. The dispute is not of general interest, so no detailed headnote has been prepared.
The only real issue was whether HMRC were right to argue that Mr Case, Mr Andrews or both knew or should have known that the transactions were connected with fraud.
Tricor argued at the UT that:
1) HMRC had failed adequately to plead an allegation of fraud against Tricor;
2) the FTT erred in law in failing adequately, or at all, to address the allegation that Tricor was actively involved in fraud and failed to identify why the pleaded facts were inconsistent with innocent involvement;
3) the FTT erred in law in finding that the contents of the fifth to ninth witness statements of Mr Andrews were not true when HMRC had failed to cross-examine him on the contents of those witness statements; and
4) the FTT erred in law in reaching conclusions that no tribunal could reasonably have reached on the evidence.
The UT held that task before the FTT was to determine where, on the balance of probabilities, the truth lay. The FTT had explained in some detail why they had come to their conclusions, and in particular why they had rejected the explanations that Tricor, or Mr Andrews, had offered of their entering into the transactions. Another panel might have taken a different view – for example that the margins were unimportant, that the daybooks were consistent with genuine trading or that the details of the cancelled deal had truly escaped Mr Andrews's recollection – but that was not the test. The question for the UT was whether the findings were supported by the available evidence. The UT saw no basis to conclude that the FTT had come to a conclusion of fact which is susceptible of challenge. On the contrary, it seemed clear that their finding of actual knowledge was right (para. 42 of the decision).
Thus, the UT did not need to address the alternative finding of imputed knowledge, but it seemed that it would have been supported by the evidence had there been no finding of actual knowledge (para. 43 of the decision).
Thus, Tricor's appeal was dismissed.
The UT's decision was expected and is not of general interest. HMRC win most MTIC cases at the FTT and UT, as part of their determined fight against such fraud.
[1] This is an appeal against a decision of the First-tier Tribunal (“the F-tT”) (Judge Tildesley and Ms Myerscough) released on 3 March 2014, with neutral citation [2014] TC 03380. The F-tT dismissed an appeal by Tricor plc (“Tricor”), against the refusal of H M Revenue and Customs (“HMRC”) of credit for input tax of, in all, about £1.85 million incurred by it in 16 purchases of mobile phones in the VAT accounting periods 12/05, 03/06 and 06/06. The ground on which credit was refused was that Tricor, or more precisely its controlling minds, Mr Joe Case, a shareholder and director, and Mr Richard Andrews, neither a shareholder nor a director but a consultant who dealt with the relevant transactions, knew or ought to have known that those transactions were connected with fraud. It was what is commonly, if not always entirely accurately, referred to as an MTIC, or missing trader intra-community fraud, appeal.
[2] The hearing of the appeal began in January 2012, when Tricor was represented by its accountant, Mr David Tunney. After the evidence had been heard, the F-tT adjourned to May 2012, in order to hear closing submissions. However, in February Tricor instructed solicitors in place of Mr Tunney, and in April it made an application for the admission of additional evidence. The hearing which had been listed for May 2012 was vacated and the application for the admission of additional evidence came before the F-tT in December 2012, when it was partially successful. The feature which is of importance now is that Tricor was given permission to serve further witness statements of Mr Case and of Mr Andrews. Mr Case made two additional statements, of no apparent significance for present purposes, while Mr Andrews, who had already made four statements and had been subjected to cross-examination on them for 21/2 days, made another five. The direction permitting the admission of his additional evidence was conditional on his offering himself again for cross-examination at the resumed hearing. After some further procedural skirmishing the hearing resumed in September 2013, when Mr Andrews, as required, was present for cross-examination on his later statements.
[3] Although almost all of HMRC's case was in contention at the first hearing, when the resumed hearing began it was no longer in dispute that all of the chains of transactions leading to Tricor's acquisitions of the phones could be traced back to a fraudulent tax loss. The only real issue therefore was whether HMRC were right in their contention that Mr Case, Mr Andrews or both knew or should have known that the acquisitions were so connected. It was common ground that the F-tT were required to approach that issue by reference to the criteria set out in Kittel v Belgium; Belgium v Recolta Recycling SPRL ECASECASVAT(Joined Cases C-439/04 and C-440/04) [2008] BVC 559 (“Kittel”), as explained by Moses LJ in Mobilx Ltd (in administration) v R & C Commrs VAT[2010] BVC 638 (“Mobilx”). In short, a trader who knew or should have known that the transaction into which he entered was connected with fraud forfeits the right to claim credit for the input tax incurred in his purchase. The test was explained by Moses LJ in Mobilx at [59]:
The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who “should have known”. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel.
[4] At [64] he added that
If it is established that a trader should have known that by his purchase there was no reasonable explanation for the circumstances in which the transaction was undertaken other than that it was connected with fraud then such a trader was directly and knowingly involved in fraudulent evasion of VAT … The principle in Kittel does no more than to remove from the scope of the right to deduct, a person who, by reason of his degree of knowledge, is properly regarded as one who has aided fraudulent evasion of VAT.
[5] The F-tT's primary finding was that Tricor's controlling minds, that is Mr Case and Mr Andrews, knew of the connection to fraud, and that HMRC were correspondingly correct to refuse the input tax credit. They also made a finding that Tricor should have known of the connection. Tricor's appeal was, therefore, dismissed. Permission to appeal to this tribunal was refused by the F-tT, but granted on limited grounds, following oral renewal of the application, by Judge Berner in this tribunal. The limited grounds are:
1) that HMRC had failed adequately to plead an allegation of fraud against Tricor, in accordance with the principles set out in Three Rivers District Council v Governor and Company of the Bank of England (No 3) ELR[2003] 2 AC 1 (“Three Rivers”);
2) that the F-tT erred in law in failing adequately or at all to address the allegation that Tricor was actively involved in fraud and failed to identify why the pleaded facts were inconsistent with innocent involvement;
3) that the F-tT erred in law in finding that the contents of the fifth to ninth witness statements [that is, the statements served as additional evidence] of Mr Andrews were not true when HMRC had failed to cross-examine him on the contents of those witness statements; and
4) that the F-tT erred in law in reaching conclusions that no tribunal could reasonably have reached on the evidence.
[6] Before us, Tricor was represented by Mr Ian Bridge, who also appeared before the F-tT at the resumed hearing. HMRC were represented at the first F-tT hearing by Mr Christopher Foulkes; at the resumed hearing, as before us, Mr Foulkes was led by Mr Jeremy Benson QC.
[7] The F-tT were provided, at the resumed hearing, with an agreed statement of facts reciting what had by then become the uncontroversial details of the fraudulent defaults on which HMRC relied. Tricor's 16 purchases, as we have said, were accepted to be connected to those defaults in the sense that the goods Tricor bought could be shown to be the same as those dealt in by the defaulters. In each case Tricor was, in the jargon used in such cases, a “broker”, buying from another UK trader (a “buffer”) and selling to an overseas customer. It was also uncontroversial that...
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Tricor PLC v The Commissioners for HM Revenue and Customs
...[2016] UKUT 0362 (TCC) VALUE ADDED TAX — MTIC appeal — finding of actual knowledge of connection of appellant’s transactions with fraud — whether HMRC’s case adequately pleaded — yes — whether allegations fairly put to appellant’s witness — yes — whether First-tier Tribunal’s conclusions op......