lincoln house

For many years now HMRC have been fighting to recover the substantial losses to the revenue caused by MTIC fraud.  Initially they pursued those participating in the fraud through the criminal courts but with little success.  More recently they have chosen to seize amounts of VAT, equivalent to the fraudulent losses, from exporters, by denying them their right to deduct input tax on the grounds that fraudulent tax losses could be identified in their transaction chains, and the exporters “knew or should have known” that their transactions were connected with the fraudulent evasion of VAT (the so-called Kittel test). The Commissioners’ arguments have invariably found favour with VAT tribunals, and appeals to the High Court have had little success.

The Court of Appeal is shortly to give judgement in the conjoined appeals of Mobilx, Caltel Opto and Blue Sphere Global, the first cases to go beyond the High Court and challenge the legal basis for the application by domestic courts of the Kittel test.  The appeals are a fundamental challenge to the legal foundation of the Commissioners’ strategy for the civil recovery of the proceeds of tax fraud, and the judgement will have wide ramifications for the trade and also for the professionals who seek to advise and defend those participating in the trade.

James Pickup Q.C., who represented the lead Appellant, Mobilx, in the Court of Appeal, examines the consequences of the Court’s judgement; how the Commissioners are likely to respond to the judgement; how they will respond to future appeals before the Tribunal; and what new arguments and strategies traders will have to meet.