Summary

The VAT and duties tribunal had not erred in law in upholding a decision to disallow input tax claims on the ground that the transactions to which the claims related were connected with the fraudulent evasion of VAT, of which the taxpayer was, or ought to have been, aware.

Facts

The appellant company (M) appealed against a decision disallowing its claims for input tax credit. The respondent commissioners disallowed the claims for input tax credit on the basis that the transactions to which the claims related, of which there were 15 in each of two relevant accounting periods, were connected with missing trader intra-community fraud of which M was, or ought to have been, aware. Some 27 of the transactions in respect of which M was refused input tax credit were alleged by the commissioners, and found by the VAT and duties tribunal, to have been part of "dirty chains", meaning chains of transactions involving a fraudulent evasion of VAT payable by virtue of a transaction forming part of the chain. Three transactions were found to have been part of "clean chains" used to conceal fraud in other dirty chains. Those three transactions were referred to as "contra-trading" transactions. The tribunal found that the clean chains were sufficiently connected with tax fraud committed by means of related dirty chains and that M knew or ought to have known that those three transactions, together with the other 27, were connected with fraud. M submitted that the tribunal had made errors of law in its conduct of its fact-finding task and that it had made findings which were contrary to the evidence.

Held

(1) M had to identify specific errors of law in the fact-finding process and could not simply attack the correctness of the tribunal's evidential conclusions, Georgiou (t/a Marios Chippery) v Customs and Excise Commissioners (1996) STC 463 CA (Civ Div) followed. (2) M alleged that the tribunal's finding that there had been a fraudulent evasion of tax by three named parties to relevant dirty chains was contrary to the evidence, because in each case the admitted default had been precipitated by the commissioners' decision to accelerate the due date for the defaulter's next VAT return. However, the primary facts relied upon by the tribunal for its inferences of fraud in relation to each of those three companies were amply sufficient reasonably to found such an inference and the suggestion that the inference was against the weight of the evidence disclosed no error of law on the part of the tribunal. (3) M also alleged that the tribunal's findings of dishonest knowledge in respect of two "contra-traders" were contrary to the evidence. Again, the primary facts found by the tribunal relevant to the contra-traders' knowledge were sufficient to permit the tribunal to make a finding of dishonest knowledge. (4) The tribunal had not erred in law in failing properly to identify the fraud with which M knew or ought to have known its transactions were connected in the contra-trading cases. It had been held that in a case of alleged contra-trading the commissioners had to show that the person in M's position knew or ought to have known of the dishonest failure to account for VAT by a defaulter or missing trader in the dirty chain or of the dishonest cover-up of that fraud by the contra-trader, or both, Livewire Telecom Ltd v Revenue and Customs Commissioners (2009) EWHC 15 (Ch), (2009) STC 643 considered. However, Livewire was addressing the question of what had to be demonstrated against an honest broker who was not a dishonest co-conspirator in the tax fraud. In the instant case, the tribunal's conclusion was that M knew that the transactions on which it based its claim were connected with fraud. Participation in a transaction which the broker knew was connected with a tax fraud was a dishonest participation in that fraud. Further, Livewire did not lay down as a matter of law that in every contra-trading case one or other of the alternative frauds had to be identified as being that which the broker knew or ought to have known about. In many, if not most, cases of contra-trading the clean chain and the dirty chain were likely to be part of a single overall scheme to defraud. (5) There was amply sufficient evidence to justify a rational, reasonable conclusion that M knew that the transactions upon which it based its input tax claim were connected with a tax fraud and, a fortiori, that the circumstances were such that, had it not known, it ought to have known of that connection.

Appeal dismissed