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The
case is understood to be the first to test rules on
whether companies have ‘knowledge or means of
knowledge’ of frauds in carousel fraud chains.
The
verdict sets up a high burden of proof for Customs’
officials hoping to withhold VAT.
Carousel
fraud has been HMRC’s biggest fraud issue to tackle in
recent years, costing the UK billions of pounds a year.
HMRC
had withheld VAT from traders involved in fraud chains,
until challenged by Bond House. A ruling in that case
decided that traders could only be denied the tax if they
had knowledge, or means of knowledge, of the frauds.
Dr
Avery Jones, chairman in the Livewire tribunal, found that
HMRC could not prove that Livewire was aware it was part
of a fraudulent chain despite some odd patterns of
trading.
‘Looking
at the totality of the evidence, we have identified a
small number of odd features but neither separately nor
when taken together do they come anywhere near to
indicating knowledge or means of knowledge of the fraud
(i.e. the fraud by the missing traders) by the
appellant,’ said Dr Jones.
He
said HMRC could not rely on the trader knowing that
carousel fraud exists and that customs needed to provide
‘cogent’ evidence of knowledge or means of knowledge.
A company only has to take ‘reasonable’ precautions
and shouldn’t have to police carousel fraud themselves.
Vantis,
which conducted the appeal on behalf of Livewire, said the
ruling was ‘extremely significant’.
‘In
winning this case we have been able to overturn HMRC’s
most common and damaging misconceptions about trading in
the mobile phone grey market and we have also succeeded in
setting a number of important legal and factual
benchmarks, which will impact upon future cases of this
type,’ said Vantis Tax managing director Don Mavin.
Paddy
Behan, head of indirect tax services at Mercury Tax Group,
said the decision was a ‘major setback’ for HMRC:
‘HMRC hasn’t struck the balance between protecting
revenues and the rights of innocent businesses.’
HMRC
said it is considering whether or not to appeal.
Source
: Financial Director - London, UK, dated 24/01/2008
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