Summary

ms had shown, on the balance of probabilities, that a company involved in the supply and export of mobile telephones knew, or ought to have known, that it was participating in transactions connected with the fraudulent evasion of VAT. On that basis it was entitled to refuse to refund input tax claimed in respect of the transactions.

Facts

The appellant company (L) appealed against a series of decisions by the respondent Customs refusing to refund input tax claimed by it in respect of both intra-Community supplies and exports. L had claimed refunds in respect of supplies and exports of mobile telephones. All the supplies to L had been made by one company (X), either directly or through an intermediary (S), and it was Customs' case that X and the suppliers linked with it were engaged in a scheme to defraud. Its refusal to make any refund was based on its contention that the transactions were all connected to other transactions involving contra trading to such an extent that L was not entitled to any refund of VAT. It did not contend that L was directly involved in the fraud, merely that it should have known of it. The issue for the tribunal was therefore whether L knew, or ought to have known, that by purchasing goods from identified suppliers it was participating in transactions connected with the fraudulent evasion of VAT.

Held

Customs was entitled to refuse the input tax claimed by L. It merely had to show, on the balance of probabilities, that the test established in Kittel v Belgium (C-439/04) (2008) STC 1537 ECJ (3rd Chamber) and restated in Livewire Telecom Ltd v Revenue and Customs Commissioners (2009) EWHC 15 (Ch), (2009) STC 643 and Blue Sphere Global Ltd v Revenue and Customs Commissioners (2009) EWHC 1150 (Ch), (2009) STC 2239 had been satisfied, Kittel, Livewire and Blue Sphere applied. It had done that. It had shown that X and the suppliers linked with it were engaged in a scheme to defraud. There was a VAT loss through the activities of X and at least one of the other companies linked with L's transactions. That loss resulted from fraudulent evasion by those companies, and L's transactions were connected with that evasion. L had close connections with X and S and it had chosen to ignore clear messages given to it about both, by its own due diligence and by Customs, preferring instead the relationships it had established with individuals in and behind those companies. As a result of those relationships, L was able to enter a highly risky market, dealing with only one supplier and having no proper legal advice about international trade or other aspects of its trade; no insurance; no arrangements for, or policy about, credit; no serious negotiation with any supplier; and no evidence of any active pursuit of or by customers. Nonetheless, it had produced a consistent rate of return of 6 per cent from its daily transactions. In such circumstances the consistent receipt of such a return could only have been as the result of some overall scheme from which L was benefitting. That scheme involved fraudulent evasion of VAT and, on the balance of probabilities, L knew or should have known that that was the case.

Appeal dismissed