The Revenue appealed from rejection of its refusal to refund input tax in the basis that the company though itself innocent of VAT fraud should have understood that the transaction was part of a MTIC fraud. The court was now asked whether the Upper Tribunal had erred in failing to consider the cumulative effect of the circumstances known to the trader, when overturning the FTT’s finding that the trader should have known that its transactions were connected with fraud.
Held: The reveue’s appeal succeeded. The court was not concerned with exploring the relevance of the ‘only reasonable explanation’ criterion. This was a high hurdle for the Revenue to establish.
Arden LJ said: ‘The UT directed itself that, if it considered that there was a reasonable explanation for concluding that the Transactions were unconnected with a fraud, it would in general be bound to conclude that the HMRC had not shown that the only reasonable explanation for the Transactions was that they were connected with fraud.’ and ‘in assessing whether the respondents’ knowledge met the no other reasonable explanation standard, the FTT still had to go on to consider all the circumstances. The question is whether or not a reasonable person mindful of those circumstances ought to have concluded that the Transactions were connected with fraud. What matters is the perspective of the person alleged to have such knowledge. A finding of knowledge to the no other reasonable explanation standard can accordingly be reached irrespective of whether the other parties to the Transactions were in fact fraudulent.’
Arden, Tomlinson, Lindblom LJJ
[2016] EWCA Civ 142, [2016] STC 1236, [2016] BVC 11, [2016] STI 1157
Bailii
England and Wales
Citing:
At FTTTx – Davis and Dann Ltd and Another v Revenue and Customs FTTTx 17-Jan-2012
FTTTx Value Added Tax – MTIC appeal involving purchases of razor blades by the Appellants in April and May 2006 – whether the Appellants should have known that their purchases were connected to the fraudulent . .
At UTTC – Davis and Dann Ltd and Precis (1080) Ltd v HMRC UTTC 6-Aug-2013
UTTC VALUE ADDED TAX – denial of repayment of input tax due to MTIC fraud – ‘grey market’ transaction in razor blades – nature of and terms on which transactions entered into – other parties to the transactions . .
Cited – Mobilx Ltd and Others v HM Revenue and Customs; Blue Sphere Global Ltd v Same and similar CA 12-May-2010
Each company sought repayment of input VAT. HMRC refused, saying that the transactions were the end-product of a fraud on it, and that even if the taxpayer did not know that a fraud was involved, it should have been aware that one was and acted . .
Cited by:
Cited – AC (Wholesale) Ltd v Revenue and Customs (Value Added Tax) UTTC 12-May-2017
VALUE ADDED TAX – purchases of televisions – transactions connected to fraudulent loss of tax – whether taxable person should have known that its transactions were connected to fraud – whether HMRC required to prove that only reasonable explanation . .
Lists of cited by and citing cases may be incomplete.
VAT
Updated: 12 January 2022; Ref: scu.561122
