Vortex Enterprises Limited v The Commissioners for HMRC

refer to a matter which is in dispute; or

refer to a matter in relation to which the evidence provided to us was contradictory or unsupported by documentary evidence,

Mr Browne was in the witness box for a considerable length of time;

the deals in question had been implemented a number of years before the hearing; and

Mr Browne had ceased to work as a consultant for the Appellant in 2016 and had not been given access to the Appellant’s records, systems or company books in preparing for the hearing,

Mr Sherard Kingston and Mr Paddon were the sole shareholders of the Appellant and Mr Robert David Kingston and Mr Paddon were the sole directors of the Appellant;

both directors of the Appellant were resident in Australia and had minimal involvement in the day-to-day running of the Appellant’s business;

the day-to-day running of the Appellant’s business was vested in two external consultants – Mr Palmer and Mr Browne – who carried out their work for the Appellant though personal services companies;

with very limited exceptions, Mr Palmer was responsible for the software transactions of the Appellant and Mr Browne was responsible for the hardware transactions of the Appellant, of which the transactions that are the subject of the appeal form part;

there were some significant differences between the software and hardware transactions, as we outline in further detail below;

the Appellant traded from an office and warehouse unit in Colchester, Essex; and

the Appellant was registered for VAT as a seller of computer games and accessories.

the visit was being made because of the small VAT input tax repayment claim which the Appellant had made in respect of the VAT period 12/12;

Mr Palmer informed the Officer that:

the Officer informed Mr Palmer that a further visit was likely to be made in order to verify the VAT input tax repayment claim in respect of the VAT period 03/13; and

the Officer approved the VAT input tax repayment claim in respect of the VAT period 12/12.

provided a detailed explanation of MTICs;

listed some of the factors which the Respondents had identified as being indicative of MTICs and referred the Appellant to the Respondents’ Public Notice 726 (“PN 726”) which contained further information in that regard;

stressed that that list of factors was not exhaustive and that it was up to the Appellant to carry out all the necessary DD to ensure that the transactions into which it entered were not connected with VAT fraud; and

noted that, whilst the Respondents were unable to provide the Appellant with authorisation or advice on whether to trade with any particular counterparty (as that remained a commercial decision for the Appellant), they advised the Appellant not to enter into a transaction with a new counterparty without first verifying the status of that counterparty with the Respondents through the Respondents’ office in Wigan. (Although the location of that office changed at various times over the period with which this decision is concerned, we will refer throughout this decision to the check with that office of the Respondents as a “Wigan check”).

the visit was being made because of the VAT input tax repayment claim which the Appellant had made in respect of the VAT period 03/13;

after making various checks, the Officer concluded that the Appellant’s records were well maintained and that there was a good audit trail to supporting documentation; and

the Officer approved the VAT input tax repayment claim in respect of the VAT period 03/13 but recommended that a further visit be made within the next 18 months due to the nature of the business.

asked if he might visit the Appellant to discuss the Appellant’s business activities and inspect the Appellant’s VAT records;

added that, as the visit alone would not give him enough time fully to review those records, he wanted to set up a regular real-time continuous monitoring arrangement pursuant to which the Appellant would provide the Respondents with its trading records in arrear on a monthly basis;

reiterated the need for the Appellant to carry out Wigan checks in relation to new or potential suppliers and customers; and

reminded the Appellant that further information on MTIC fraud could be found on the Respondents’ website as well as in PN 726.

the visit was being undertaken in the course of the continuous monitoring project;

the Appellant’s representatives had informed the Officers that:

the Officers emphasised to the Appellant’s representatives the benefits of conducting credit checks and doing Wigan checks as part of the DD in relation to each counterparty;

the Officers talked to the Appellant’s representatives about MTIC fraud and handed the Appellant’s representatives a number of notices including PN 726 and a booklet entitled “How to spot missing trader fraud”; and

the Officers concluded that the Appellant was not currently an MTIC trader but that it should be continuously monitored for a number of months due to the high-risk nature of its trade class.

the visit was being undertaken in the course of the continuous monitoring project; and

Mr Palmer explained that the Appellant put “ex works” on its invoices to its customers, by which it meant that shipping insurance was the customer’s responsibility and not the Appellant’s. It did not mean that responsibility for all shipping issues, including the transport itself, was the customer’s responsibility. Officer Penry explained that the latter could give rise to issues in relation to the zero-rating of the Appellant’s exports and Mr Palmer said that he and Mr Browne would review this practice.

the Respondents no longer needed continuously to monitor the Appellant on a monthly basis;

the Appellant should continue to conduct Wigan checks in relation to new or potential suppliers and customers (although validation should not be seen as a guarantee by the Respondents of the status of those suppliers and customers and any decision to contract with them was a matter for the Appellant). The Officer then went on to explain the process for conducting Wigan checks and advised that the process should be undertaken for every transaction that the Appellant undertook with each supplier and customer to ensure that verification remained up to date; and

the Appellant’s attention was drawn to PN 726 and the booklet on “How to spot missing trader fraud”. The Officer directed the Appellant to the places in the Respondents’ website where that material could be found.

the visit was being made because of the VAT input tax repayment claim which the Appellant had made in respect of the VAT period 03/15. This had been larger than previous VAT input tax repayment claims;

Mr Browne informed the Officer that the repayment claim was attributable in large part to a purchase of PlayStation 4 consoles from PLC and the sale of those consoles to Advanced Technology Company BV (“ACT”), an entity based in Belgium;

after making various checks, the Officer concluded that the Appellant’s records were well-maintained; and

the Officer approved the VAT input tax repayment claim in respect of the VAT period 03/15 but noted that, due to the nature of the business, further repayment claims were likely to be made.

the Appellant’s representatives had informed the Officers that:

the Officers advised Messrs Palmer and Browne that:

the Officers handed Messrs Palmer and Browne a number of public notices, including a copy of PN 726 and the booklet on “How to spot missing trader fraud”; and

there was a discussion in relation to two trades into which the Appellant had entered with XGC and Mr Palmer explained that:

notwithstanding the assurances in relation to DD set out in paragraph 25(1)(c) above, Officer Gazsi was concerned about the depth of the Appellant’s DD and had expressed those concerns to Messrs Palmer and Brown. Messrs Palmer and Browne had confirmed that, going forward, they would make their DD checks more robust and would insist on written contracts with the Appellant’s suppliers and customers.

he had dealt with Mr Weeks in relation to all of the Appellant’s purchases from XGC;

he had known Mr Weeks for about 5 years having done business with Mr Weeks when he was at his previous employer; and

he had met Mr Weeks a number of times, at his place of work and at a trade fair called CEBIT, in Germany.

as a result of trading partners including monitored traders which were linked to tax losses, it had been decided to recommence continuous monitoring of the Appellant;

Messrs Palmer and Browne said that:

the Officers handed Messrs Palmer and Browne a further copy of PN 726.

following enquiries made by the Respondents into the transaction chains pursuant to which the Appellant had made purchases from CPL in November 2015 and January 2016, those purchases had been found to be connected with MTIC fraud;

the recovery of VAT input tax could be denied where the person claiming the repayment of the VAT input tax either knew or should have known of a connection between its transaction and MTIC fraud; and

it was the Appellant’s responsibility to ensure that it had carried out sufficient DD to satisfy itself of the integrity of its suppliers and its customers and examples of the sort of checks which the Appellant might wish to consider were set out in PN 726, which the Officer enclosed.

Messrs Palmer and Browne said that:

the Officers handed Messrs Palmer and Browne several public notices, including a copy of PN 726 and the booklet on “How to spot missing trader fraud”.

following enquiries made by the Respondents into the transaction chains pursuant to which the Appellant had made:

those purchases had been found to be connected with MTIC fraud;

the recovery of VAT input tax could be denied where the person claiming the repayment of the VAT input tax either knew or should have known of a connection between its transaction and MTIC fraud; and

it was the Appellant’s responsibility to ensure that it had carried out sufficient DD to satisfy itself of the integrity of its suppliers and its customers and examples of the sort of checks which the Appellant might wish to consider were set out in PN 726.

the visit was being undertaken in the course of the continuous monitoring project;

the transactions which are the subject of the appeal were discussed and the Officers explained that the Respondents were still mapping the fraudulent schemes and therefore could not provide specific details of the companies involved as a result of the rules in relation to tax confidentiality;

Mr Paddon explained that:

Messrs Palmer and Browne explained that goods which were the subject of the relevant transactions were shipped “on hold”, which meant that title remained with the supplier until they were inspected. The Officers pointed out that some of the invoices provided to the Appellant by the relevant supplier contained a note to the effect that title would be retained by the relevant supplier until payment was received and yet, in some cases, the relevant customer had paid the Appellant before the Appellant had paid the relevant supplier. This meant that the Appellant appeared to be selling goods that it did not yet own; and

Messrs Palmer and Browne confirmed that the Appellant did not itself insure the goods which were the subject of the relevant transactions as the goods were insured by the freight forwarder.

as noted in paragraph 5 above, on each occasion that the Appellant purchased goods from GLS, it sold the relevant goods on to ACLM, on each occasion that the Appellant purchased goods from XGC, it sold the relevant goods on to GECX and, on each occasion that the Appellant purchased goods from PLC, it sold the relevant goods on to Inco Mobile;

in each of the deal chains, the Appellant purchased the goods from a supplier belonging in the UK (so that it thereby incurred VAT input tax) and then sold the goods to a customer in belonging in a member state of the European Union (the “EU”) other than the UK (so that the relevant VAT input tax was attributable to a zero-rated supply for VAT purposes) and the Appellant sought to recover the VAT input tax in respect of its purchases on that basis;

each deal chain was connected with MTIC fraud and involved an entity commonly termed a “contra-trader” – an entity interposed to create distance between the fraudulent defaulter and the person in the position of the Appellant. It is unnecessary for the purposes of this decision for us to explain how contra-trading operates but there is a helpful explanation of contra-trading in paragraphs [28] to [49] of CCA Distribution Limited (in administration) v The Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 222 (TC), referring to the Court of Appeal decision in Fonecomp Limited v The Commissioners for Her Majesty’s Revenue and Customs [2015] EWCA Civ 39;

in each deal chain, the largest mark-up made by each of the participants by some margin was the mark-up made by the Appellant. The mark-ups made by the Appellant differed from chain to chain. The lowest mark-up made by the Appellant was 2.68% on some of the items in the deal chain for deal 7 and the highest mark-up was 4.86% in the deal chain for each of deals 15 and 16. Although the evidence of Mr Brown was that the Appellant bore the costs of transporting the goods to its customer in each case – see paragraph 60 below – the only evidence of transport costs with which we were provided (which was in relation to deal 1) suggested that the fact that the Appellant bore the cost of transporting the goods to its customer would not alter the fact that the Appellant always made the largest mark-up of all the participants in each deal chain;

in the deal chain for each of deals 9 and 10, the relevant goods moved in a circle, with a company called Polimax Sp ZOO (“Polimax”) at both the start and the end of the relevant chain;

similarly, in the deal chains for each of deals 11, 15 and 16, where the Appellant acquired goods from PLC, the relevant goods started off in a company called Trading Point APS (“Trading Point”) and ended up, after passing through PLC, the Appellant and Inco Mobile, in a company called Tharis Communications Limited (“Tharis”) and each of PLC, Trading Point and Tharis was owned by the same person, a Mr Lal Chhiber;

the identity of each of the parties in the deal chain for deal 12 was exactly the same as the identity of each of the parties in the deal chain for deal 13; and

deals 15 and 16 were essentially a single deal chain in which 1,699 Sony PlayStation 4 consoles were sold by Trading Point to PLC and by Inco Mobile to Tharis but the transactions within the deal chain to which the Appellant was party – the purchase by the Appellant from PLC and the sale by the Appellant to Inco Mobile – were split into two parts.

the purchase order from the Appellant to GLS bore the same date – 1 April 2016 – as each of the purchase order from ACLM to the Appellant and the pro-forma invoice from the Appellant to ACLM;

after being inspected by GFS on 4 April 2016, the goods were shipped by GFS to ACLM’s representative, DL Freight, in Amsterdam, where they arrived on 5 April 2016 and were inspected by DL Freight on the following day;

none of the purchase orders, the pro-forma invoice or the two inspection reports contained any provisions in relation to title to the goods;

the Appellant paid the purchase price for the goods of €430,754.00 in two instalments – £106,692.00 (which equated to €134,431.92) on 6 April 2016 and €296,322.48 on 7 April 2016; and

the Appellant received the sale price for the goods of €372,636.00 in four instalments – €37,636.00 on 4 April 2016, €100,000.00 on 6 April and then €230,000.00 and a further €5,000.00 on 7 April 2016.

the purchase order from the Appellant to GLS bore the same date – 7 April 2016 – as the purchase order from ACLM to the Appellant;

after being inspected by GFS on GLS’s behalf on 6 April 2016 and then again by GFS on the Appellant’s behalf on 7 April 2016, the goods were shipped by GFS to ACLM’s representative, L&A, in Amsterdam, where they arrived and were inspected by L&A on 8 April 2016;

the L&A inspection report made no mention of ACLM but instead referred to GLS as the seller and the Appellant as the purchaser;

none of the purchase orders or the two inspection reports contained any provisions in relation to title to the goods. However, in an email of 7 April 2016 from GLS to GFS, GLS asked GFS to allow the Appellant to ship the goods “on hold”;

the Appellant paid the purchase price for the goods of €267,624.00 in one instalment on 11 April 2016; and

the Appellant received the sale price for the goods of €230,850.00 in two instalments – €23,085.00 on 7 April 2016 and €207,765.00 on 8 April 2016.

in an email of 11 July 2016 headed “Re: Stock offer – 29/06/2016”, Mr Mahesh Jangra of PLC informed Mr Browne that there were presently 1700 units left and available for allocation at GFS at a price of €247 per unit. Mr Jangra asked Mr Browne to review and advise if he required the stock;

on 11 July 2016, Inco Mobile sent a purchase order in respect of 1,002 of the 1,700 units to the Appellant;

on 12 July 2016, the Appellant sent a purchase order in respect of 1,002 of the 1,700 units to PLC and PLC sent a pro-forma invoice in respect of those units to the Appellant. The pro-forma invoice stated that property and title to the units would not pass to the Appellant until PLC had received payment of the purchase price for the relevant units in full;

in an email of 12 July 2016 headed “Re: VORTEX – PO:1002 X PS4 500gb”, Mr Jangra informed Mr Browne that there were a further 697 units available which he understood from Mr Chhiber the Appellant was also taking. Mr Jangra asked Mr Browne to send him the purchase order for the additional units so that he could make arrangements to allocate those too;

on 12 July 2016, the Appellant sent a purchase order in respect of the 697 units to PLC and PLC sent a pro-forma invoice in respect of those units to the Appellant. The pro-forma invoice stated that property and title to the units would not pass to the Appellant until PLC had received payment of the purchase price for the relevant units in full;

on 12 July 2016, Mr Jangra sent an email to GFS requesting that the 697 units be allocated to the Appellant and then a subsequent email instructing GFS to allow the Appellant to ship the units on hold. The later email of instruction stated that:

on 12 July 2016, PLC sent a “stock “ship on hold” note” to GFS in respect of all 1,699 units. The note stipulated that:

on 13 July 2016, Inco Mobile sent a purchase order in respect of the 697 units to the Appellant;

on 13 July 2016, all 1,699 of the units were shipped by GFS to ACLM’s representative, L&A, in Amsterdam, where they arrived and were inspected by L&A on 14 April 2016;

on 14 July 2016, Mr Jangra sent an email to GFS instructing GFS to release 1,002 of the units to the Appellant but to retain the remaining 697 units on hold;

on 19 July 2016, Mr Jangra sent an email to GFS instructing GFS to release the remaining 697 units to the Appellant;

on 19 July 2016, following an inspection by L&A on the previous day, all 1,699 units were released to the Appellant;

none of the purchase orders issued by ACLM to the Appellant or the invoices issued by the Appellant to ACLM contained any provisions in relation to title to the units;

there is no evidence that L&A were ever informed that the goods had been shipped on hold even though they were delivered to L&A on 14 July 2016 and not released by L&A to Inco Mobile until 19 July 2016;

the Appellant paid the purchase price for the 1,002 units of €296,992.00 and the purchase price for the 697 units of €206,590.80 in four instalments – €29,699.82 and then a further €242,400.00 on 13 July 2016, €121,000.00 on 14 July 2016 and €110,484.32 on 19 July 2016; and

the Appellant received the sale price for the 1,002 units of €259,518.00 in two instalments - €25,951.80 on 12 July 2016 and €233,566.20 on 15 July 2016 - and the sale price for the 697 units of €180,523.00 in one instalment on 18 July 2016.

also incurred VAT input tax on supplies of services which it received; and

made significant purchases of goods on which it did not incur VAT input tax.

the note of the meeting held on 5 September 2013 – see paragraph 18 above – records that Messrs Palmer and Browne told the Officers of the Respondents that the goods were insured by the carrier while they were in transit and by the relevant freight forwarder outside that period;

the note of the meeting held on 13 October 2016 – see paragraph 29 above – records that Messrs Palmer and Browne told the Officers of the Respondents that the freight forwarder was responsible for insuring the goods both when the goods were in transit and outside that period and that the Appellant also purchased supplemental insurance as a top-up if the goods were substantial;

the note of the meeting held on 9 February 2017 – see paragraph 31 above – records that Messrs Palmer and Browne told the Officers of the Respondents that the freight forwarder was responsible for insuring the goods both when the goods were in transit and outside that period but no mention was made of top-up insurance;

in his witness statement prior to the hearing, Mr Browne said that, whilst goods were insured when they were in transit, and that the Appellant had occasionally purchased supplemental insurance for larger shipments while they were in transit, “[we] did not need to have separate insurance for goods being held at freight forwarders, as goods held in a separate, independent and secure freight forwarders are obviously not at high risk”;

at the hearing, Mr Browne said, at one stage, that, contrary to the above assertion in his witness statement, the goods were insured while they were held at the freight forwarder as well as when they were in transit and then, at another stage, that he could not recall whether the goods in every deal were insured at all; and

Mr Paddon was categoric about insurance - stating that it would have amounted to commercial suicide for the Appellant not to have taken steps to ensure that the goods were insured at all times while they were at the Appellant’s risk.

invoices from GFS to the Appellant in relation to deals 1, 2 and 4 which were conspicuously silent in relation to the question of insurance;

an email dated 12 July 2016 from PLC to GFS in relation to deals 15 and 16 which stated that it was up to the Appellant to insure the goods that were the subject of those deals; and

the Appellant’s own insurance policy with AXA, which made it clear that it covered only goods in the Appellant’s warehouse and not goods held elsewhere or in transit.

he conducted negotiations by way of email, Whatsapp, Skype and the telephone;

normally, the negotiations were conducted over a very short period – a few days or a week – and he had kept notes of those negotiations although he had subsequently disposed of those notes when he ceased to be engaged by the Appellant in 2018; and

he would never confirm either his purchase or his sale until he knew that all aspects of both transactions had been agreed. This was in order to ensure that the Appellant did not get stuck with the goods.

in all 16 of the deal chains, the quantity of goods made available by the relevant supplier always matched exactly the quantity of goods which the Appellant sold to the relevant customer. There was never a need for the Appellant to source the goods which it sold to the relevant customer from two or more separate suppliers or for the Appellant to sell the goods which it acquired from the relevant supplier to two or more separate customers;

the deal documents were all produced within a very short timeframe – often within the space of a day;

in deal 11, PLC had offered the goods at a price of €250 in an email of 1 June 2016 and an invoice referring to the sale of the goods at that same price had been issued the following day;

in deals 15 and 16, PLC had offered the goods at a price of €247 in an email of 11 July 2016 and two purchase orders referring to the sale of the goods at that same price had been issued a day and a week later respectively; and

it was hard to understand why Mr Brown had disposed of his notebooks when he said he did given that the time when he said he had done so (2018) was after the date when the Respondents had issued their letter to the Appellant denying the recovery of the VAT input tax.

in relation to the point made in paragraph 49(1) above, the transactions implemented by the Appellant in the deal chain were almost always initiated by the Appellant’s supplier and not the Appellant’s customer. In other words, the Appellant would be approached by a prospective supplier and asked if it wished to buy a specified number of goods of a specified type and specification at a specified price and the Appellant would then seek to locate a prospective customer to which it might sell the relevant goods at a profit. It was therefore not the case that the Appellant would happen to be approached at the same time by both a prospective supplier and a prospective customer wishing to transact in the same specified number and specified type and specification of goods; and

in relation to the points made in paragraphs 49(3) and 49(4) above, the mere fact that the price in the invoice was the same as the price in an earlier email did not mean that there had been no oral negotiation in the interim or even before the earlier email was sent. Indeed, in relation to deal 16, the earlier email referred to there having been a prior conversation between Mr Browne and Mr Chhiber – see paragraph 37(4) above. In any event, there would have been occasions when the price offered to the Appellant by the relevant supplier was the best price which the Appellant could hope to achieve and so negotiation would have been futile.

there was never any occasion when Mr Browne had to sell the goods acquired from a single supplier to two or more customers or had to source the goods sold to a single customer from two or more suppliers; and

there was always a precise symmetry between the identity of the supplier and the identity of the customer in each deal chain. In other words, on each occasion that Mr Browne was offered goods by GLS, he found a willing customer for all of those goods in ACLM, on each occasion that Mr Browne was offered goods by XGC, he found a willing customer for all of those goods in GECX and, on each occasion that Mr Browne was offered goods by PLC, he found a willing customer for all of those goods in Inco Mobile.

at the time that it made each purchase, there was no meaningful prospect that the Appellant would sell the goods that it acquired from the relevant supplier to anyone other than the designated customer; and

at the time of each purchase, there was an understanding between Mr Browne, the relevant supplier and the relevant customer that the goods acquired by the Appellant from the relevant supplier would be on-sold to the relevant customer.

this was never requested by the Respondents in the course of their investigation because, as Mr Bycraft conceded in the course of his oral evidence, the Respondents merely requested the “deal documents” in relation to each supply and the phrase “deal documents” would not naturally include documents evidencing the negotiations leading up to the relevant deal; and

given the nature of the market, it is perfectly plausible that, had any meaningful negotiations occurred, they would largely have taken place on the telephone, as Mr Browne testified.

unless otherwise agreed between the parties, the customer was required to pay for the goods within 30 days of the invoice date;

all goods were sold on an “ex-works basis” and the customer was responsible for insuring the goods once they left the Appellant’s premises;

goods could be returned to the Appellant only if the Appellant agreed or the goods were faulty or damaged; and

all goods remained the property of the Appellant until full payment was received.

typically, mark-ups on software tended to be higher than mark-ups on hardware and that the Appellant aimed for an average of 8.5% across the business;

the mark-ups made by the Appellant on the deal chains which were the subject of the appeal - which ranged from 2.68% to 4.86% - were perfectly normal for goods of the type in question; and

he had no visibility in relation to the mark-ups which were made by the other entities in each deal chain, including the Appellant’s direct supplier and direct customer in each deal chain.

two inspection reports prepared by Unicorn Shipping Limited (“Unicorn”) on two different dates in relation to two separate sets of headphones which were the subject of deal 8 and which used the same serial number to describe both sets of goods in question; and

the documentation in relation to deal 8, which showed that GECX paid the Appellant for the goods on the day before the goods were inspected by Unicorn on the Appellant’s behalf and prior to the goods’ being allocated to the Appellant’s supplier (XGC) by its own supplier (a company called Manhattan Systems Limited (“MSL”)).

in those cases where, before making payment for goods, the Appellant took physical possession of them – such as deal 2, where the Appellant took possession of the goods on 8 April 2016 but did not pay for them until 11 April 2016 – the relevant supplier was taking the risk that the Appellant would not pay for the goods and it would have to enforce its retention of title; and

in those cases where a customer paid the Appellant for goods before the Appellant paid its supplier – such as deal 1, where the goods were shipped on 4 April 2016, the customer (ACLM) paid the Appellant on 6 and 7 April 2016 and the Appellant paid the supplier (GLS) on 7 April 2016 - the customer was paying the Appellant for goods to which the Appellant did not yet have title.

those were mainly for the “HDDs and SSDs”;

it did not have serial numbers for the headphones which were the subject of deal 8 because it was not normal to take serial numbers for that product; and

as regards the PlayStation 4 consoles, he had photographs showing the serial numbers for the transactions comprising deal 11 which had occurred in June 2016 but not for the transactions comprising deals 15 and 16 which had occurred in July 2016.

on 23 April 2013, GLS was originally incorporated as SYE Limited. On 11 September 2013, the company changed its name from SYE Limited to SS Auto Suppliers Limited, on 17 April 2014, the company changed its name to UK Energy Saving Limited and, on 1 June 2015, the company changed its name to GLS;

on 1 June 2015, Mr Suleiman Ali Mohamed and Mr Saleh Mohamed resigned as directors of the company and Mr Sajid Hussein became a director;

on 22 January 2016, Mr Hussein ceased to be a director of the company and Mr Rehman became a director of the company. Notice of Mr Rehman’s appointment as a director was received by Companies House on 8 February 2016 and notice of Mr Hussein’s resignation as a director was received by Companies House on 23 February 2016;

on the same date, Mr Hussein transferred all of his shares in the company to Mr Rehman. Notice of this transfer was given to Companies House in the annual return of the company filed on 23 February 2016; and

the annual accounts for GLS in respect of its financial year ending 30 April 2014 stated that the company was dormant. The annual accounts of GLS in respect of its financial year ending 30 April 2015 stated that the company had assets of £391.00 and creditors of £1,419.00, so that its net assets at the end of that financial year were minus £1,028.00;

the evidence of Mr Browne was that:

the annual return of XGC dated 17 November 2015 and filed with Companies House on 26 January 2016 showed that the only director of the company was Mr Russell David Williams and that Mr Williams had acquired all the shares in the company from Mr Weeks on 30 June 2015;

on 3 February 2016, forms were filed at Companies House recording that Mr Robert Edwards and Mr Mohammed Fadlallah had been appointed as directors of XGC on 1 February 2016; and

in a letter dated 6 February 2014 to Mr Weeks and Mr Russell of XGC, Officer SD Munroe-Birt of the Respondents informed them that:

the email of 14 July 2015 from Mr Browne to Officers Gazsi and Miller referred to in paragraph 26 above attached the following documents which had been obtained in the course of the DD as regards XGC:

the evidence of Mr Browne at the hearing was that:

at the time of the relevant transactions, each of Mr Parshotam Lal Chhiber and Ms Raksha Devi Chhiber owned 50% of the shares in PLC;

the directors of the company were as follows:

prior to entering into the relevant transactions with PLC:

he had not carried out a VIES check in relation to PLC;

he had obtained no other DD material in relation to PLC prior to entering into the relevant transactions apart from that set out in paragraph 81(1) above; and

he had not dealt with Mr Degan in relation to the transactions but had instead dealt with Mr Chhiber and another man whose name he could not now recall.

prior to entering into the relevant transactions with ACLM, he had:

he had obtained no other DD material in relation to ACLM prior to entering into the relevant transactions apart from that set out in paragraph 82(1) above.

the director of GECX from the commencement of its activities on 28 May 2013 until 20 August 2015 was Mr Vasileios Totolis and thereafter its director was Mr Mussa Salim Patel; and

on 27 May 2016, GECX changed its principal place of business and notified Mr Browne of that fact by email on 1 June 2016.

prior to entering into the relevant transactions with GECX, he had:

he had obtained no other DD material in relation to GECX prior to entering into the relevant transactions apart from that set out in paragraph 84(1) above. In addition, he had not met or communicated with Mr Totolis and he could not recall whether he had taken up any references. In view of the fact that Mr Browne failed to produce any written evidence of his having taken up references in relation to GECX, we find as a fact that, on the balance of probabilities, Mr Browne did not do so; and

the fact that he was selling headphones and hard drives to GECX when its activities were as recorded in the letter of introduction and certificate referred to in paragraph 84(1)(b) above had not given him any concerns at the time.

the evidence of Mr Browne was that:

in response to an enquiry made by the Respondents with the Dutch tax authorities in relation to Inco Mobile, the Dutch tax authorities provided the Respondents with a completed questionnaire which Mr Browne had provided to Inco Mobile but which bore the letter head of CPL. Mr Browne could not explain why he had sent the CPL questionnaire to Inco Mobile or why he had replied in the affirmative to the question in that questionnaire “Do you obtain third party advice regarding due diligence”.

Sections 1.3 and 1.4, which stipulated that the notice was directed at VAT-registered persons involved in the supply of any of the goods described in Section 1.4. (These goods included computers and accessories and electronic equipment for playing games);

Section 6.1, which set out various factors which might alert a person to the possibility that VAT might go unpaid. These factors were grouped into three – legitimacy of customers or suppliers, the commercial viability of transactions and the viability of the goods described by the supplier. All in all, some 26 factors were mentioned, some of which were:

Section 6.2, which gave examples of the sorts of specific checks carried out by businesses involved in the consultation exercise when the rules were introduced. These included:

Section 6.3, which stipulated that, in each case, the Respondents would be seeking to identify what actions the relevant trader took in response to any indicators of risk and, in particular, what DD had been undertaken and what actions had been taken in response to the results of the DD.

a newly-established supplier or customer with no financial or trading history;

unsolicited approaches from organisations offering an easy profit on high value/low volume deals for no apparent risk;

repeat deals at the same or lower prices and small or consistent profit;

individuals with a prior history of the wholesale trade in high value/low volume goods such as computer parts and mobile phones;

established companies that have recently been bought by new owners who have no previous involvement in your sector; and

new companies managed by individuals with no prior knowledge of the product who hire specialists from within the sector.

the relevant question is not whether the relevant trader has conducted the appropriate level of DD but rather whether the relevant trader knew or should have known of the connection with the fraud (see Moses LJ in Mobilx, as described in paragraphs 100 and 101 above);

this means that, where the relevant trader did not know of the connection with the fraud, the fact that the relevant trader did not do any, or what the relevant court or tribunal considers to be an appropriate amount of, DD will not, in and of itself, mean that the relevant trader should be denied a credit for the input tax if it can be shown that the DD in question would not have revealed the connection with the fraud (see Lewison J in Livewire, as described in paragraph 100 above);

on the other hand, if the relevant trader did not know of the connection with the fraud but should have been aware of that connection because it was an obvious inference from the facts and circumstances of the transaction and there was no other reasonable explanation for the circumstances in which the transaction was undertaken, then it should not be entitled to a credit for the input tax regardless of whether or not it has conducted DD (see Moses LJ in Mobilx, as described in paragraph 101 above);

as for what the relevant trader knew or should have known, it is not sufficient for the Respondents to show that the relevant trader knew or should have known that, by its purchase:

Instead, the facts must be such that either the relevant trader knew that the transaction was connected with fraud or the only reasonable explanation for the transaction was that it was connected with fraud (see Moses LJ in Mobilx as described in paragraph 98 above); and

in approaching the “only reasonable explanation” test:

has there been a loss of VAT?

has the loss of VAT been caused by fraudulent evasion?

was the relevant purchase connected with that fraudulent evasion? and

did the Appellant know or should the Appellant have known that the relevant purchase was connected with that fraudulent evasion?

the Appellant had a historic propensity to undertake deals connected with the fraudulent evasion of VAT; and

between 2013 and 2015, at least 73 of the Appellant’s deals, amounting to over 60% of the Appellant’s VAT input tax over that period, could be traced to 5 suppliers connected with the fraudulent evasion of VAT.

that the allegation of fraud was being made; and

the primary facts upon which reliance would be placed at trial in order to justify the allegation

the cases to which Mr Carey had referred all related to an allegation of fraud made against a party to the relevant proceedings and not, as in this case, to allegations of fraud made against third parties in connection with transactions which were not themselves the subject of the proceedings. Accordingly, we were not bound to apply the strict rules set out in those cases to the allegations of fraud in this case. It was open to us to exercise our discretion in such a way as to allow the evidence to be adduced despite the shortcomings in the SOC; and

in the alternative, the decisions in Halifax and others (Case C-255/02) (“Halifax”)and Kittel demonstrated that the cause of VAT input tax disallowance in cases such as this was not the existence of fraud per se but more the existence of an abusive practice. As noted in paragraph [63] in The Commissioners forHer Majesty’s Revenue and Customs v Citibank NA and E Buyer UK Limited [2017] EWCA 1416 (Civ) (“Citibank”), “the underlying EU law principle to be extracted from Halifax is that the right of a taxable person to deduct input VAT is precluded where the transactions from which that right derives constitute an abusive practice. As it seems to me, the two limbs of Kittel are derived from, and provide a workable approach to, the operation of that underlying principle”. Viewed through that prism, the evidence in relation to the historic transactions whose inclusion was in dispute could be viewed not as evidence pertaining to an allegation of fraud, as such, but simply as evidence pertaining to an allegation of abusive practice by the Appellant - in being involved so often in supply chains which had given rise to tax losses. On that basis, the strict rules pertaining to allegations of fraud were not applicable.

the SOC had been required to be produced in December 2018, long before Officer Bycraft had prepared his first witness statement, and therefore it had not been possible to include in the SOC all of the matters which were included in that witness statement;

the principle underlying the pleading rules in relation to fraud was that a person who would be detrimentally affected by the allegation of fraud was entitled to be aware in advance of the trial both that the allegation was going to be made and of the primary facts on which reliance was going to be placed in order to prove the allegation. In this case, the Appellant had been aware since it received Officer Bycraft’s first witness statement in July 2019 of the fact that the allegations were going to be made and of the primary facts on which the allegations were based; and

finally, even though the Appellant had known since July 2019 that the SOC did not contain references to the matters the omission of which from the SOC was now the subject of its complaint, it had deliberately chosen to sit on its hands and ambush the Respondents a matter of hours before the start of the hearing when, had it raised the objection earlier, the Respondents would have been able to amend their SOC at the earlier stage.

the case law in relation to applications for very late amendments – which is to say, amendments proposed after a trial date has been set and which, if allowed, would cause the trial date to be lost - showed that a heavy burden was on the party who was proposing the late amendment to show the strength of the new case and why justice to him, his opponent and other court users required him to be able to pursue it. The risk of losing the trial date might mean that the lateness of the application would itself cause the balance to be loaded heavily against the granting of permission. In each case, in addition to the consequences in relation to the trial date, the nature of the proposed amendment, the quality of the explanation for its timing and an appreciation of the consequences of granting the application in terms of work wasted and consequential work to be done had to be taken into account – see Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), CIP Properties (AIPT) v Galliford Try Infrastructure Limited and others [2015] EWHC 1345 (TCC), Denley v The Commissioners for Her Majesty’s Revenue and Customs [2017] UKUT 340 (TCC) and Vilca and others v Xtrata Limited and Xtrata Tintaya A.A [2017] EWHC 2096 (QB);

in this case, the Appellant had been entitled to proceed on the assumption that the SOC set out the full extent of the allegations which it was facing in the appeal and would suffer prejudice if the scope of those allegations was to be extended at the last minute;

the fact that the Appellant might have made its own application to exclude evidence on the basis of the terms of the SOC was neither here nor there. It was not up to the Appellant to police the conduct by the Respondents of the litigation process, particularly in the case of MTIC appeals. The Respondents had been conducting MTIC litigation for over 10 years and knew very well the rules in relation to pleading fraud. In fact, the Respondents had shown that they were aware of the rules in the present case because, in relation to each of the transactions which were the subject of the appeal, they had both pleaded the existence of fraud in the supply chain and set out in the SOC the primary facts on which the relevant allegation of fraud was being made;

in any event, the revisions to the SOC which were set out in the application did not cure the defect of which the Appellant was complaining. The revisions merely sought to insert into the SOC an allegation that the direct suppliers to the Appellant in relation to the historic transactions “were connected with the fraudulent evasion of VAT”. They did not say expressly which person in each historic supply chain was alleged to be fraudulent or set out the primary facts on which reliance was to be placed in order to establish that fact; and

were we minded to allow the application to amend the SOC, the Appellant would face the invidious choice of proceeding with the substantive hearing immediately without having adequate time to refute the allegations or returning at a subsequent date for the substantive hearing, with consequent delay and increased costs in resolving the appeal.

we did not agree with either of the submissions of Mr Hayhurst set out in paragraph 118 above;

as regards the first of those submissions, we recognised that the authorities to which we had been referred all pertained to an allegation of fraud made against a party to the proceedings, as opposed to an allegation of fraud which was merely detrimental in evidential terms to a party to the proceedings. However, although there was no authority which dealt specifically with allegations of fraud falling within the latter case, it seemed to us that the same principles ought to apply in such a case given the serious nature of the allegation and the adverse consequences for the Appellant if it were to be established. We did not think that it was appropriate for the Respondents breezily to introduce evidence to the effect that there had been fraud in the historic supply chains without including in the SOC both a statement identifying the persons who were alleged to have committed the fraud and the primary facts on which reliance would be placed at trial to establish that that was the case. In that respect, the evidence in relation to fraud in the historic supply chains was no different from the evidence in relation to fraud in the supply chains which were the subject of the proceedings. In both cases, these were serious allegations with potentially damaging implications for the Appellant and evidence in relation to them could not be introduced without being adequately covered in the SOC. The Respondents had implicitly recognised this in the way in which they had dealt in the SOC with the allegations of fraud in the supply chains which were the subject of the proceedings. Those allegations also pertained to third parties and not the Appellant itself and yet the Respondents had taken care to identify the alleged fraudster and the basis for the allegation of fraud in each case. They ought to have done the same in relation to the allegations of fraud in the historic supply chains;

as regards the second submission, we thought that the distinction which Mr Hayhurst was seeking to draw was so fine as to be non-existent. The abusive practice which was being alleged in relation to the historic transactions was the fact that the Appellant had acquired assets through supply chains which involved fraud. It was not simply that the Appellant had acquired assets through supply chains which happened to have involved a tax loss. The Respondents were not simply alleging that there was some unspecified abusive practice in relation to those acquisitions. Instead, they were alleging that those acquisitions formed part of supply chains which involved fraud;

we therefore agreed with Mr Carey that the evidence in question could not be introduced on the basis of the SOC in its current form;

we were, however, sympathetic to Mr Hayhurst’s application to amend the SOC despite the late stage at which the application had been made. We considered this to be a finely-balanced point in relation to which neither side emerged with much credit;

we agreed with Mr Carey that, at the point when the relevant witness statement was filed in July 2019, or very soon after that date, the Respondents ought to have known that the SOC was defective. Accordingly, the Respondents ought to have applied to amend the SOC well before the hearing. They were fully aware of the litigation rules and had in fact applied the rules pertaining to pleadings of fraud in dealing with the allegations of fraud to the goods which were the subject of the proceedings;

on the other hand, we agreed with Mr Hayhurst that the Appellant had been on notice of the defects in the SOC from the same date and had deliberately waited until the hearing before raising its objections to the evidence in question. Moreover, this was not a case where the material to which the Appellant had objected was a small or relatively insignificant part of the evidence upon which the Respondents were seeking to rely. For instance, if the evidence had been set out in a limited number of paragraphs in the witness statement of one of the Respondents’ less important witnesses, then it might very easily have been overlooked by the Appellant. In that instance, prior to seeing the Respondents’ skeleton argument, the Appellant might reasonably have reached the view that the relevant paragraphs were merely surplus and did not form part of the Respondents’ case. However, in this case, the evidence in question was set out at considerable length in a witness statement for the Respondents’ chief witness and comprised a significant part of that witness statement. Following its receipt of the witness statement, the Appellant could hardly have reached the view that the evidence in question was merely surplus and was not intended to be a significant part of the Respondents’ overall case. And, even if the Appellant had been in any doubt on that score, it could have sought clarification on the point at any point in the intervening 3 years. Instead, it had deliberately chosen to wait until the day before the hearing to make its application to exclude the evidence;

we recognised that allowing the Respondents to amend the SOC at this late stage might give rise to the need to adjourn the hearing of the substantive appeal. Mr Carey had said to us that the Appellant might well require additional time to deal with the implications of the additional evidence and Mr Hayhurst had indicated to us that the Respondents would not oppose any application by the Appellant to adjourn the hearing on that basis. We therefore concluded that, in the event that we were to allow the SOC to be amended, it would be in accordance with the overriding objective to uphold any application for adjournment which might be sought by the Appellant for that reason;

although we recognised that any such adjournment would have costs implications for the parties, we considered that allowing the application to amend the SOC would not mean that any costs which had previously been incurred by either party would be wasted. It would simply be the case that the additional evidence would need to be addressed by the Appellant in making its submissions;

taking all of the above into account, we concluded that, on balance, it would be fair and just to permit the Respondents to amend the SOC at this late stage;

however, we did not think that the amendments which had been proposed by the Respondents in making their application adequately cured all of the defects in the SOC as it stood. This was not surprising as the Respondents had been required to produce the revisions in very short order following their receipt of the Appellant’s late application to exclude the relevant evidence. In our view, it was inevitable given those time constraints that the proposed revisions would be inadequate to deal with all of the identified defects in the SOC. That is not to say that the proposed revisions made absolutely no difference to the SOC’s coverage of the matters in question and that the Respondents’ application to amend the SOC should therefore be rejected on those grounds. The proposed revisions represented a better attempt at covering the matters in question and could therefore be accepted as it was. However, in our view, simply upholding the application and permitting the revisions to be included as they stood would be likely to lead to considerable delays and disputes in the course of hearing the substantive appeal as the parties debated which evidence could be adduced on the basis of the revised SOC and which could not; and

accordingly, recognising that the substantive hearing might well fall to be delayed in any event by our allowing the Respondents’ application as it stood, we concluded that it would be in accordance with the overriding objective of dealing with the appeal fairly and justly to allow the Respondents more time to propose more considered amendments to the SOC. In that way, the likelihood of future disputes in relation to the admissibility of evidence during the hearing of the substantive appeal would be reduced.

between VAT periods 06/13 and 03/16, the Appellant undertook at least 72 deals (amounting to over 60% of the Appellant’s VAT input tax over that period) which were also connected with MTIC fraud;

many of the traders involved in those 72 deals (or the key individuals involved in those deals) were also involved in the deals which are the subject of the appeal; and

the deals in question involved 5 fraudulent suppliers to the Appellant, as follows:

the first witness statement of Officer Bycraft;

the witness statement of Officer George Munro Beaddie;

the witness statement of Officer Candida Styles-Coles; and

the witness statement of Officer Peter Dean.

in the amended SOC, the Respondents had alleged that each of the participants involved in the historic transaction chains was a fraudulent trader and therefore a failure on their part to establish that each participant in a particular transaction chain was fraudulent meant that the relevant chain should be disregarded; and

in the alternative, the Respondents had failed in their duty of disclosure as regards the allegations of fraud in the transaction chains and therefore the evidence in relation to the historic transactions should be ignored or treated with extreme caution.

first, Mr Carey submitted that, because the evidence pertained to allegations of fraud, the level of disclosure required from the Respondents was not the standard level of disclosure for hearings before the Tribunal set out in Rule 27 of the Tribunal Rules but instead the higher level of disclosure required by the Civil Procedure Rules; and

secondly, Mr Carey submitted that, even if the level of disclosure required was the level of disclosure required by Rule 27 of the Tribunal Rules, the Respondents had failed to meet the requirements of that rule in relation to the historic transactions.

Scenario 1 – a case in which the taxpayer is denied input tax recovery on the grounds that it knew of the connection between its transaction and MTIC fraud and acted dishonestly or fraudulently;

Scenario 2 – a case in which the taxpayer is denied input tax recovery on the grounds that it knew of the connection between its transaction and MTIC fraud but did not act dishonestly or fraudulently;

Scenario 3 – a case in which the taxpayer is denied input tax recovery on the grounds that it knew of the connection between its transaction and MTIC fraud but did not act dishonestly or fraudulently – which is to say, the same as in scenario 2 – and where, as part of the evidence on which the Respondents seek to rely, the Respondents allege that other transactions implemented by the relevant taxpayer were connected with MTIC fraud.

all 3 of the scenarios involve an allegation of the existence of fraud by entities which are involved in the deal chain in question but only scenario 1 involves an allegation of the existence of fraud by the taxpayer itself; and

the issue we are presently considering in relation to the historic transactions falls within scenario 3.

BCS entered into 5 deals with the Appellant between 29 October 2014 and 30 December 2014;

in relation to 4 of the 5 deals, the supplier to BCS of the goods which were sold to the Appellant was Powertalk Mobile & Data Communication Limited (“Powertalk”) and, in relation to the remaining deal, the supplier to BCS of the goods which were sold to the Appellant was Surat Trade Limited (“Surat”); and

each of Powertalk and Surat fraudulently failed to account to the Respondents for the VAT output tax which arose in respect of each supply to BCS.

OSSL entered into 7 deals with the Appellant between 12 October 2015 and 1 December 2015;

in respect of each of those deals, the goods supplied to the Appellant by OSSL were connected with MTIC fraud through ASL, the supplier to OSSL;

in the VAT period of ASL in which ASL supplied the goods to OSSL, OSSL was the only declared customer of ASL. ASL was a party to the deal chain relating to several of the deals which are the subject of the appeal and, in each case, the Appellant has accepted that the relevant deal was connected with MTIC fraud;

ASL set off its VAT output tax liability in respect of the supplies to OSSL against VAT input tax in respect of goods acquired from a company called White Diamond Limited (“WDL”), which in turn set off its VAT output tax liability in respect of its supplies to ASL against VAT input tax in respect of the same goods acquired from companies called Fast Away Services Limited (“Fast Away”) and 4 Ways Wholesale Limited (“4 Ways”);

on 13 October 2015, WDL was compulsorily de-registered for VAT due to its apparent links to the fraudulent evasion of VAT. Despite its de-registration for VAT, WDL continued to make supplies to ASL after that which were purported to be taxable supplies and, on 24 March 2016, WDL was assessed to VAT output tax in respect of those supplies of £1,220,862.97. That VAT output tax was never paid. In addition, on 25 January 2016, WDL was denied £2,397,827.07 of VAT input tax on the basis that it knew or should have known that the relevant purchases were connected with the fraudulent evasion of VAT;

at a meeting with Officers of the Respondents on 13 November 2015, the sole director and shareholder of WDL told the Respondents that WDL’s only suppliers were Fast Away and 4 Ways;

Fast Away was registered for VAT with effect from 30 November 2012 but submitted nil quarterly VAT returns until it was compulsorily de-registered for VAT on 27 July 2015, some months before the transactions in question. Following its de-registration for VAT, Fast Away was assessed to undeclared VAT output tax of £1,010,499.00;

4 Ways was registered for VAT with effect from 5 August 2009 in the business area of motor repair. In August and September 2014, the name, registered address and business area of the company were changed and it became apparent to the Respondents that the VAT registration number of the company had been hi-jacked and that 4 Ways was being used as a fraudulent entity. The taxable person purporting to be 4 Ways was assessed to undeclared VAT output tax of £215,282.00;

in respect of each of the deals with OSSL, the goods acquired by the Appellant from OSSL were in each case sold by the Appellant to ACLM, which was the entity which acquired all of the goods sold to the Appellant by GLS in the deals which are the subject of the appeal and which the Appellant accepts were connected with MTIC fraud;

at the material time, the director and sole shareholder of OSSL was Mr Sajid Hussein. Mr Hussein was later involved in GLS, as outlined in paragraph 76 above. GLS was a supplier to the Appellant in 10 of the deals which are the subject of the appeal and, in each case, the Appellant has accepted that the relevant deal was connected with MTIC fraud. On 7 June 2018, Mr Hussein was disqualified as a director for 11 years for causing OSSL to engage in MTIC fraud; and

on 4 December 2015, at around the time of some of the historic transactions involving the Appellant, OSSL was:

CPL entered into 4 deals with the Appellant between 8 November 2015 and 27 January 2016;

in all 4 deals, the goods supplied to the Appellant by CPL were connected with MTIC fraud through a company called Askos Wolt LLP (“AWL”);

in relation to 2 of the deals, CPL acquired the goods from 3A Distribution Limited (“3A”), which in turn acquired the goods from AWL. AWL set off its VAT output tax liability in respect of the supplies to 3A against VAT input tax in respect of goods acquired from a company called ATFX Systems Limited (“ATFX”);

ATFX was a fraudulent trader – it failed to submit any VAT returns after January 2015 and was de-registered for VAT as a missing trader on 17 December 2015. On 28 September 2016, ATFX was assessed to undeclared VAT output tax of £1,661,437.00 in respect of the VAT period 10/15 and its final VAT period, corresponding to the period in which it traded with AWL, and that sum was never paid;

in relation to the other 2 deals, CPL acquired the goods from MSL, which in turn acquired the goods from AWL. AWL set off its VAT output tax liability in respect of the supplies to MSL against VAT input tax in respect of goods acquired from Fair;

Fair was a fraudulent trader – it failed to submit any VAT returns at all and was de-registered for VAT as a missing trader on 2 March 2016. On 16 December 2016, Fair was assessed to undeclared VAT output tax of £2,238, 802.00 in respect of the VAT period 01/16, corresponding to the period in which it traded with AWL, and that sum was never paid; and

CPL engaged the services of Mr Weeks between August 2015 and March 2016, following the resignation of Mr Weeks as a director of XGC. XGC was a supplier to the Appellant in several of the deals which are the subject of the appeal and, in each case, the Appellant has accepted that the relevant deal was connected with MTIC fraud. In addition, Mr Weeks was involved in 3 of the historic transactions between XGC and the Appellant which are alleged by the Respondents to be connected with MTIC fraud – see paragraph 158 below. Prior to his engagements with XGC and CPL, Mr Weeks had also been engaged by another company, ATPL, in relation to transactions connected with the fraudulent evasion of VAT – see the letter described in paragraph 78(3) above.

PLC entered into 52 deals with the Appellant between May 2013 and July 2016;

in respect of those deals, PLC set off the VAT output tax due in respect of its supply of goods to the Appellant either against VAT input tax on the purchase of goods which could be traced back to the fraudulent evasion of VAT or against VAT input tax on purchases of goods which it had fraudulently purported to make but which in fact had not occurred. In particular:

PLC regularly entered into transactions which were connected with MTIC fraud. For example:

in respect of the VAT periods 11/05, 08/13, 02/15 and 08/15, and again in relation to the deal chains which are the subject of the appeal, PLC was denied the right to deduct VAT input tax on the basis that goods which it had purportedly purchased had not been supplied and, in the case of the assessments in respect of the denied VAT input tax in respect of the VAT periods 08/13, 02/15 and 08/15, those assessments remain unpaid;

in respect of the VAT periods 11/13, 02/14 and 05/14, PLC was assessed to VAT output tax for providing insufficient evidence of purported exports and those assessments remain unpaid;

on 8 June 2010, Mr Chhiber was disqualified as a director for 4 years in respect of his actions as a director of another company, IC Distributions Limited, in failing to provide sufficient evidence of purported exports; and

the Appellant has accepted that, in relation to the deal chains which are the subject of the appeal, the purchases which it made from PLC were connected with MTIC fraud.

XGC entered into 4 deals with the Appellant between 19 December 2014 and 27 January 2016;

in relation to 1 of the 4 deals, as we have already stated in paragraphs 145 and 146 above, due to the misidentification of the relevant defaulting trader in the amended SOC as a consequence of an error in the first witness statement of Mr Bycroft, the Respondents have not satisfied us that the relevant deal was connected with MTIC fraud;

in relation to the second of the 4 deals, the goods were acquired by XGC from:

in relation to the other 2 deals, although the entities above XGC in the deal chains have not been traced, given:

we consider that, on the balance of probabilities, those 2 deals were also connected with MTIC fraud.

the number of deals implemented by the Appellant which were connected with MTIC fraud. It was implausible that the Appellant could have entered into so many deals which were connected with the fraudulent evasion of VAT – the 16 deals which were the subject of the appeal and the historic transactions – and yet remained unaware of that fact;

that, if the Appellant were to have been an innocent dupe, then, in order for the scheme to work, both the Appellant’s supplier and the Appellant’s customer would have needed to approach the Appellant at the same time about the same numbers and specifications of goods. Indeed, given that Mr Browne’s evidence was that he had approached the customers as opposed to being approached by the customers, it was even more implausible that the Appellant could be seen as an innocent dupe;

the Appellant’s significant role in the deal chains, which meant that it would have made no sense for the organisers of the fraud to have kept the Appellant in the dark about the fraud. The fraud could continue only if the Respondents made the VAT input tax repayment. If the Appellant were to be a free agent, then:

There was no reason why the organisers of the fraud would have taken a chance on using an innocent conduit to play the Appellant’s role when there were so many other entities in the chain which clearly knew about the fraud and could have done so;

the fact that the Appellant always made the largest mark-up of any of the entities involved in the deal chains, which was consistent with the fact that it knew that its role in the deal chain – as broker and therefore responsible for obtaining the repayment of the VAT input tax – carried the highest risk commercially. The size of the mark-up made by the Appellant in each deal chain, relative to the mark-ups made by the other entities in the relevant deal chain, suggested that the entities above the Appellant in each deal chain were repeatedly failing to identify the best price at which they could source the goods or the best price at which they could realise the goods. That was implausible. In addition, Mr Hayhurst pointed to two historic transactions in consoles in November 2013 in which the Appellant’s mark-up was only 1.73%. He said that, in those deals, which involved the Appellant’s selling to a counterparty belonging in the UK – so that the Appellant was acting as a buffer and not as a broker in the transaction chain – the Appellant’s different (and less risky) role had been reflected in the lower mark-up which it made;

the speed at which the transactions comprising each deal chain took place;

the fact that, on every occasion that the Appellant acquired goods from GLS, it sold those goods to ACLM, on every occasion that the Appellant acquired goods from XGC, it sold those goods to GECX, and, on every occasion that the Appellant acquired goods from PLC, it sold those goods to Inco Mobile;

the fact that individuals involved in the deals such as Mr Weeks, Mr Hussain and Mr Chhiber were associated with previous MTIC fraud chains;

the trading model, which was not consistent with rational commerce. For example:

the significant proportion which the VAT input tax incurred in the deals constituted of the aggregate VAT input tax incurred by the Appellant in the relevant VAT periods on purchases of goods for re-sale - 98.95% in the VAT period 06/16 and 99.37% in the VAT period 09/16; and

that Messrs Browne and Palmer were well aware of the risk of MTIC fraud in the sector - both as a result of their past experiences in working for other market players and through their numerous interactions with the Respondents while working for the Appellant – and yet, despite being so aware, had failed to take adequate steps to minimise the prospects of their becoming involved in deals connected with MTIC fraud.

a reasonable trader in the position of the Appellant and operating in the market in question would have wanted to take rigorous steps to satisfy itself that:

the Appellant’s DD fell well short of that standard in that:

the Respondents’ case in relation to the trading model for the relevant transactions was based on the views of Officer Bycraft, who had no experience of trading in the relevant market and was therefore poorly-placed to comment on the extent to which the deals in question had been conducted on a commercial basis;

the evidence of all three representatives of the Appellant – who were highly experienced in the relevant market - was that a number of the features on which the Respondents were relying to support their proposition that the deals had not been conducted on a commercial basis did not reflect market practice. In particular:

in short, the Respondents were guilty of simply applying what they perceived to be objective indicators that the Appellant knew or should have known of the connection with fraud and applying them slavishly without regard to commercial reality;

in the light of the evidence in relation to the market provided by the Appellant’s 3 witnesses, we should draw an adverse inference from the fact that the Respondents had failed to adduce any expert evidence in relation to the operation of the market – see Prest v Prest [2013] 2 AC 415 at paragraph [44] and Wisniewski v Central Manchester Health Authority [1998] PIQR at 324. The Appellant had provided witnesses who had testified as to the operation of the market and we should draw an adverse inference from the fact that the Respondents had not produced their own witnesses to testify to the contrary or provided a satisfactory explanation as to why they had not done so;

the Appellant had been subject to the Respondents’ continuous monitoring project between August 2013 and May 2014 and the Respondents had not raised any concerns with the Appellant over that period in relation to the Appellant’s counterparties or the manner in which the Appellant was carrying out the DD in relation to them. The fact that the Appellant was removed from the continuous monitoring project provided comfort to the Appellant that it was acting appropriately in relation to the transactions into which it entered and the DD which it was carrying out in relation to its counterparties;

the blame for the failure by the Appellant to be aware of the connection between its transactions and MTIC fraud was instead to be laid at the Respondents’ door. The Respondents should have alerted the Appellant to their concerns at a much earlier stage. Instead, they had allowed the Appellant to believe that its deal chains were clean. For instance, although the Respondents were now alleging that PLC had been a fraudster since 2005, they had signed off on deal chains involving PLC both at the end of 2013 and then again in May 2015 and allowed the Appellant to reclaim VAT input tax incurred in those deal chains. In short, as Mr Paddon had said in his oral testimony:

there was no reason why the Appellant should have been aware that PLC was a contra-trader or a fraudulent defaulter. Mr Browne had known Mr Chhiber for approximately 6 years by the time of the transactions which were the subject of the appeal and had visited PLC’s premises when trading commenced between the Appellant and PLC. Moreover, the Respondents had been provided with the DD undertaken by Mr Browne prior to the Appellant’s entering into the transactions with PLC which were the subject of the appeal and had not expressed any criticism of that DD;

as for GLS, before entering into any transactions with GLS, Mr Browne had contacted GFS to confirm the legitimacy of GLS, had met GLS’s director on many occasions (including at GLS’s premises) and had obtained the appropriate DD documentation;

in relation to XGC, Mr Browne had known Mr Weeks for a number of years, meeting Mr Weeks at CEBIT conferences while Mr Weeks still worked for Vogue Distribution. Mr Browne’s evidence was that he recalled speaking to an employee of XGC who was responsible for DD, had obtained various DD documents and had conducted a VIES check on the company. Moreover, the Appellant had been dealing with XGC for approximately 18 months prior to the VAT periods to which the appeal related and had submitted DD documentation to the Respondents in that time and the Respondents had not raised any queries with the Appellant in relation to the company;

in relation to each of ACLM, GECX and Inco Mobile, before entering into transactions with the relevant company, Mr Browne had met the principal individual associated with the company – Mr Montilla van der Zee in the case of ACLM, Mr Totolis in the case of GECX and Mr Vermin in the case of Inco Mobile - at a CEBIT conference and had built on the relationship thereafter by way of emails and Skype. He had also obtained the appropriate DD documentation;

there was no reason why the Appellant should have conducted credit checks on its counterparties because there was no reason for credit checks from the commercial perspective and, as Mr Paddon had pointed out, doing a credit check would not have identified the existence of MTIC fraud in the relevant deal chain in any event. A credit check merely informed the person carrying out the check about the creditworthiness of its counterparty at a particular moment in time. It did not inform the person carrying out the check whether its counterparty – or entities elsewhere in the supply chain – were participating in fraud. Mr Browne had agreed, saying that a lack of funds revealed in a counterparty’s bank statement would not cause him any concerns because:

As regards the GLS bank statement in particular, Mr Paddon had said that it covered only a small moment in time and was no guide as to GLS’s level of revenues outside the period covered by the statement;

there was no reason why Messrs Browne and Palmer should have deduced from what was said to them at the relevant time by the Respondents’ Officers that Wigan checks were any better than VIES checks in terms of detecting a connection with MTIC fraud in the deal chain. Indeed, at the meeting between the parties on 8 July 2015, the Respondents’ Officers had recommended that VIES checks be carried out in addition to Wigan checks and had explained that Wigan checks merely confirmed whether a counterparty’s VAT registration number was valid. In addition, the Respondents had advanced no cogent reason at the hearing why a VIES check was not as good as a Wigan check in terms of detecting a connection with MTIC fraud in the deal chain. Finally, the evidence showed that the Respondents’ Officers frequently used VIES checks themselves instead of carrying out Wigan checks;

it would have made no commercial sense for the Appellant to enter into deals which it knew were connected with MTIC fraud because that would have entailed its running the risk of having its claim for the repayment of VAT input tax denied. Indeed, on those occasions where the Appellant suspected that a purchase might be so connected, it did not enter into the relevant purchase;

although ASL had been cited as a referee by GLS on its account-opening form with the Appellant and ASL was the contra-trader which supplied GLS in the deal chains pursuant to which the Appellant had purchased from GLS, there was no reason why Mr Browne should have known either that ASL was a contra-trader or that ASL was the supplier to GLS in the relevant deal chain;

in terms of the percentage which the deals that were the subject of the appeal represented of the deals done by the Appellant in the relevant VAT periods, it was misleading to consider the deals separately from those purchases of goods made by the Appellant which did not give rise to VAT input tax. So far as the Appellant was concerned, it was trading in goods in the market and did not distinguish between purchases of goods which were subject to VAT input tax and purchases of goods which were not; and

even if there was an overall orchestrated scheme to defraud the Respondents, there was no reason why the Appellant needed to be a knowing participant in that scheme. Indeed, it would have been better for the participants in the scheme if the Appellant were to be ignorant of the scheme’s existence. In arguing that there was an overall scheme to defraud in this case, the Respondents had made much of the fact that, in the deal chains involving PLC as supplier to the Appellant, not only had the goods in question been acquired by PLC from Trading Point, owned by Mr Chhiber (the owner of PLC), but also that the goods in question had been sold by the Appellant’s customer, Inco Mobile, to Tharis, another company owned by Mr Chhiber. Thus, the same goods had passed through three companies owned by Mr Chhiber within the relevant deal chain. However, if the Appellant had been party to the overall scheme to defraud, then it would not have been necessary for Inco Mobile to have been inserted between the Appellant and Tharis in the relevant deal chain. The Appellant would simply have sold directly to Tharis. Thus, if there was such an overall scheme to defraud, the Appellant was an innocent dupe despite the steps which it had taken to avoid participating in deals which were connected with MTIC fraud.

we agree with the Respondents that the circumstances in which the deals occurred indicate the existence of an orchestrated VAT fraud. The fact that 2 of the deal chains – deals 9 and 10 – involved goods moving in a circle starting and ending with Polimax and that 3 of the deal chains – deals 11, 15 and 16 – involved the goods passing through 3 companies under the control of Mr Chhiber is indicative of that fact, as is the involvement of the same cast of characters in the various deals such as Mr Hussein, Mr Chhiber and Mr Weeks;

we think that it stretches credulity to believe that it was unfortunate coincidence that the Appellant could have been involved in so many deal chains which were connected with MTIC fraud and which involved so many of the same players without being aware that that was the case;

the Appellant played a critical role in the fraud given that, as broker, it was responsible for securing the repayment of VAT input tax which enabled the fraud to continue. That critical role was reflected in the mark-ups which the Appellant obtained in each deal chain relative to the mark-ups made by the other participants in the deal chain. In that regard, we see no relevance in the fact that the Appellant’s mark-up in each of the deals which are the subject of the appeal was not excessive when considered in relation to the mark-ups made by the Appellant elsewhere in its business. That point is relevant only in relation to the question of whether the Appellant should have known of the connection with MTIC fraud in the event that it did not actually know. It is of no relevance to the question of whether the Appellant actually knew of that connection. In our view, of greater relevance to the question of whether it actually knew is the fact that its mark-up was always the highest of the mark-ups made by the participants in each deal chain and the fact that, in the 2 historic transactions in consoles in November 2013 in which the Appellant was acting as a buffer and not as a broker, its mark-up was much lower than the mark-ups in the deals which we are presently considering;

we agree with the Respondents that, given the pivotal role which was being played by the Appellant in the fraudulent deal chains, it would have made no sense for the orchestrators of the fraud to keep the Appellant in the dark about the fraud. If the Appellant were merely an innocent dupe, as it alleges, it might have discovered the existence of the scheme and alerted the authorities. Alternatively, it might innocently have frustrated the scheme by sourcing the relevant goods from an alternative supplier or selling the relevant goods to an alternative customer. We think that it is implausible that the orchestrators of the scheme would have been prepared to take that risk, particularly when there were so many other entities in the deal chain which were plainly aware of the fraud and could have played the role of broker. In this respect, we do not agree with Mr Carey that the inter-position of Inco Mobile between the Appellant and Tharis in the 3 deal chains in which the Appellant acquired from PLC suggests that the participants in the scheme wished to disguise the scheme from Appellant. On the contrary, we think that it shows only that the participants in the scheme wished to disguise the scheme from the Respondents. The fraud in question would have been obvious if, in each case, the Appellant had bought and sold the relevant goods from entities controlled by Mr Chhiber;

the point made in paragraph 169(4) above about an innocent frustration of the fraudulent scheme by the Appellant leads on to what we consider to be the most significant point in the context of this question, which is why it is that, for each of the 16 deals, there was always the same matching customer for each supplier to the Appellant and why that matching customer bought precisely the same number and specification of goods as had been acquired by the Appellant from the relevant supplier. As we have already noted in our finding of fact in paragraph 52 above, we emphatically reject the explanation provided by Mr Browne that, on each occasion that he was offered goods by a particular supplier, he was able in a very short time frame to identify a customer and then negotiate and conclude a deal to offload precisely the same number and specification of goods onto that customer. In the first place, it is implausible that, in each case, Mr Browne happened to approach a customer who was willing to purchase all that Mr Browne was able to obtain. We think that it is much more likely that the customer in question was identified simultaneously with the related purchase. More significantly, any doubts that there might be on that score evaporate when one considers that, on each occasion that goods were purchased from GLS, the goods were sold to ACLM, on each occasion that goods were purchased from XGC, the goods were sold to GECX and, on each occasion that goods were purchased from PLC, the goods were sold to Inco Mobile. That recurring pattern, particularly when coupled with the fact that the goods in 5 of the deal chains moved in a circular fashion and that it would have been critical to that circularity for the Appellant to sell to the “right” customer, is utterly inconsistent with the proposition that Mr Browne acted freely and at his own initiative in locating prospective customers for the goods that he acquired from each supplier;

the fact that the deals constituted such a significant portion of the VAT input tax-bearing purchases of goods made by the Appellant in the relevant VAT periods is also an indication of the Appellant’s knowledge of the connection with MTIC fraud. The VAT input tax incurred under the deals constituted 98.95% of the VAT input tax incurred on purchases of goods made by the Appellant in the VAT period 06/16 and that figure rose to 99.37% in the VAT period 09/16. We are not persuaded by Mr Carey’s submission that it is wrong to separate out the VAT input tax-bearing purchases from the non-VAT input tax-bearing purchases for that purpose on the basis that the Appellant would have seen no meaningful distinction between the different types of purchases in carrying on its trade. Instead, we think that it is significant that nearly all of the VAT input tax incurred by the Appellant on purchases of goods in the relevant VAT periods was incurred in deals which were connected with MTIC fraud; and

we are also persuaded that the fact that no Wigan checks were carried out in relation to any of the counterparties in these deal chains is of some relevance in this regard. We say that because it is not as if the Appellant did not carry out any Wigan checks on other counterparties of the Appellant or even that Mr Browne himself did not carry out any of those checks. We think that the fact that no Wigan checks were carried out in relation to these counterparties tends to support the view that Mr Browne was aware of the connection between the Appellant’s transactions with these counterparties and MTIC fraud. We accept that this point on its own is not a sufficient basis on which to found our conclusion that Mr Browne knew of the connection but it is certainly consistent with, and supportive of, that conclusion.

in deal 1, which was the first transaction which the Appellant had ever done with GLS, GLS agreed to allow the Appellant to ship goods worth €430,000.00 out of the UK to ACLM on 4 April 2016 without any written contractual provision as to title. The goods were released to ACLM and sold by ACLM to its customer on 6 April 2016 and yet ACLM did not complete payment to the Appellant and the Appellant did not complete payment to GLS until 7 April 2016;

similarly, in deal 2, the Appellant did not pay GLS until 11 April 2016 but GLS allowed the Appellant to ship goods worth €267,624.00 out of the UK on 7 April 2016 and the goods to be released to the Appellant on 8 April 2016 and yet the Appellant did not complete payment to GLS until 11 April 2016;

also in deal 2, ACLM paid €230,850.00 for the goods in full before any inspection had been carried out on its behalf – the inspection by L&A on 8 April 2016 was expressed to be conducted on behalf of the Appellant and not ACLM;

in deals 15 and 16:

no attention was paid to the question of whether or not the goods in each deal were properly insured during the period that they were held at the Appellant’s risk and we have found as a fact that they were not properly insured over that period;

in many of the deals, no serial numbers were provided to the Appellant and those that were provided came from the relevant supplier and were not checked by the relevant freight forwarder on behalf of the Appellant. In addition, the Appellant did not maintain a master database so that it could ensure that the goods passing in any particular deal had not been the subject of a previous deal; and

it was noticeable to us that, whereas Mr Browne testified that he would never seek to cut the Appellant’s supplier out of a deal chain because “[if] we had made it our practice to undercut our potential trading partners … we would have soon found ourselves blacklisted from the industry”, Mr Palmer testified that “it would be commercial suicide to inform trading partners of who our customers and suppliers were. They would just start trading with them directly, cutting us out of the process completely”. The only logical way to resolve that inconsistency is to conclude that, whereas Messrs Browne and Palmer might be sure that they would not themselves seek to bypass a supplier by going to that supplier’s own supplier, they would not necessarily have the same degree of confidence that their own customers would always act in the same way. That would be a perfectly natural standpoint for any trader in the market in question and one which a reasonable businessman might well adopt.

So, if that is how the Appellant’s representatives approached the issue of undercutting the Appellant’s suppliers, one might expect the same approach to the issue to be adopted by GLS. In other words, even if GLS itself would have considered that going behind one of its suppliers would be commercially inappropriate behaviour, one would expect GLS to be wary of revealing the name of its supplier to its customer. And yet GLS did not adopt that approach in this case. Instead, GLS chose to name ASL - the supplier to GLS in each of the first 7 deals which it did with the Appellant in the VAT period 06/16 - as one of its 2 referees in its account-opening form with the Appellant.

it was running the risk that it might be taking part in a transaction connected with MTIC fraud; or

it was taking part in a transaction which was likely to have been connected with MTIC fraud.

first, as we have already noted in paragraph 103(5) above, in approaching this question in the case of each purchase, we need to examine the totality of the evidence in relation to that purchase and not examine each factor in a piecemeal fashion. An item of information which might not arouse suspicion when viewed in isolation might very well do so when considered in the light of other available items of information;

secondly, and again as we have already noted in paragraph 103(5) above, in approaching this question in the case of each purchase, we need to take into account not only the facts and circumstances which were actually known to the Appellant but also the facts and circumstances which the Appellant would have known if it had deployed the means of knowledge which were available to it;

thirdly, the standard to be applied in determining whether the Appellant should have known of the connection with MTIC fraud is that of the reasonable businessman with ordinary competence – see Advent and S&I (as mentioned in paragraph 165 above);

fourthly, it follows from the above that the approach which we need to adopt in relation to this test is to consider in relation to each purchase what facts and circumstances Mr Browne, as the relevant representative of the Appellant, would have known or discovered had he acted as a reasonable businessman with ordinary competence. In that context, we think that a reasonable businessman with ordinary competence would have:

In our view, the approach adopted by Mr Browne in this regard was woefully inadequate. Not only did he ignore the existence of the warning signs that were apparent – warning signs which he acknowledged at the hearing would now lead him to make further enquiries. He also failed to make the most basic of enquiries in relation to the Appellant’s counterparties. In addition, there was not one occasion when Mr Browne, when confronted with information in relation to a purchase or a counterparty which ought to have persuaded him to make further enquiry into the position, went on to do so. This would have been surprising in and of itself in any event but, given that the Appellant was put back onto continuous monitoring during the VAT periods in question – which was surely an indication that the Respondents had concerns about the Appellant’s supply chains – it is inexplicable. In short, based on our impression of Mr Browne as a witness in the proceedings, we do not think that he can fairly be said to have attained the standard of a reasonable businessman with ordinary competence in the manner in which he carried out the relevant deals;

fifthly, despite Mr Carey’s valiant attempt to persuade us to the contrary, we consider that the Respondents made it very clear to the Appellant’s representatives that Wigan checks were a preferable form of DD to VIES checks. Consequently, if the Appellant’s representatives formed the view that the two forms of checks were simply alternatives and of equal value in DD terms, we believe that that was not a reasonable conclusion for them to have reached. We say that because:

In the circumstances, the fact that the notes of the meeting on 8 July 2015 also record that the Respondents recommended doing VIES checks in addition to Wigan checks and reminded the Appellant’s representatives of the limitations of Wigan checks is neither here nor there. We think that, if Mr Brown and Mr Palmer reached the view that the two types of check were inter-changeable, then that conclusion will have been reached in the face of the clear advice to the contrary which they had received from the Respondents.

Having said that, we agree with Mr Carey that the failure to carry out Wigan checks is of limited relevance to the “should have known” question because, with the exception of PLC (see paragraph 188(1) below), the Respondents have not established in relation to any of the supplies how a Wigan check would have revealed to the Appellant that there was a connection between the relevant supply and MTIC fraud. Apart from in relation to PLC, the most that can be said about its relevance to the “should have known” question is that it is indicative of the general approach which the Appellant adopted to DD in general. The failure to carry out Wigan checks is of greater relevance to the “actually knew” question, for the reason outlined in paragraph 169(7) above; and

finally, we need to deal with the “Batman and Robin” point – the allegation which was made constantly by Mr Carey and the Appellant’s witnesses throughout the hearing to the effect that the Respondents were in some way culpable for the failure of the Appellant to discover that the relevant purchases were connected with MTIC fraud.

We consider that this allegation has absolutely no bearing on the questions which we have to address in this case. It is self-evidently irrelevant in relation to the “knew” question because, if the Appellant knew of the connection with MTIC fraud, there could be no need for the Respondents to inform it of that connection.

As regards the “should have known” question, we should start by saying that, as a general matter, the conduct of the Respondents is not something which we have the jurisdiction to address. Any challenge to that conduct by the Appellant is solely a matter for judicial review. It is perfectly possible that, with the benefit of hindsight, the Respondents might have handled certain matters a little differently – for example, the Respondents might have extended their verification in relation to claims for VAT input tax recovery on the earlier transactions with PLC and thereby alerted the Appellant to potential problems in deal chains involving PLC. However, as a general matter, whether or not the Respondents could and should have handled matters differently is outside the jurisdiction of this tribunal.

The only sense in which the Respondents’ conduct is relevant to the “should have known” question is whether the alleged failure by the Respondents to do more than they did to alert the Appellant to the existence of MTIC fraud in the Appellant’s deal chains is somehow relevant to the question of whether the Appellant should have known of that existence. This would be based on the proposition that the Appellant was entitled to rely on the Respondents’ failure to alert it to the existence of MTIC fraud in its deal chains as an indication that all was well in those deal chains.

We reject that proposition.

We say that for essentially two reasons:

In the circumstances, we think that the question of whether or not the Respondents could have done more to assist the Appellant in the identification of MTIC fraud in its deal chains is irrelevant to the question of whether the Appellant should have known of that MTIC fraud and we propose to say nothing further about this allegation in the paragraphs which follow.

if he had carried out the appropriate DD in relation to GLS, he would have discovered that:

there were therefore a number of recent changes of directors, changes in ownership and changes in name – all factors which ought to have led him to make further enquiries into the nature of its supplier and the deal chain. Each of those factors was set out in the Respondents’ published material as grounds for suspicion of a connection with MTIC fraud. Moreover, leaving aside for the moment the fact that those factors were mentioned in the Respondents’ published material, those factors were, in our view, grounds for suspicion of a connection with MTIC fraud, when viewed cumulatively and not in a piecemeal fashion. Mr Carey quite rightly pointed out in his closing submissions that a company changing its name lawfully, properly and on a publicly-searchable register is not an indicator of VAT fraud but, in our view, this fails to take into account the significance of regular company name changes over a relatively short period and the increased risk profile suggested by changes in the identity of a company’s shareholder and directors in addition to the changes in company name. We consider that the combination of factors described in paragraph 184(1) above should have led Mr Browne to have made further enquiries into GLS and the deal chain;

in addition, had Mr Browne obtained the bank statement which he obtained only after doing several of the deals with GLS, and considered the entries on that bank statement along with the details from the annual return referred to in paragraph 76(5) above, and conducted the credit checks that he was advised to carry out by the Respondents, he would surely have had grounds to question the ability of the company to enter into transactions of the magnitude of the transactions into which the Appellant was entering with GLS. It is true that the bank statement related only to one account and further enquiries might well have revealed the existence of other accounts with more substantial revenue entries but the critical point is that it should have led to those further enquiries. Similarly, if Mr Browne had obtained the financial information in the annual return, as he should have done, it would have been apparent to him that the company was in poor financial health and that should have led to further enquiries as to how the company was able to enter into transactions of the size in question;

another cause for suspecting the credibility of GLS was the fact that Mr Browne had been dealing with Mr Hussein as the representative of OSSL in transactions with the Appellant as recently as December 2015. The fact that, just a few months later, the same man was holding himself out as representing GLS even though the Companies House records which Mr Browne had the means of obtaining showed that he was no longer a shareholder or director of GLS should also have given rise to further questions; and

Mr Browne might also have thought to enquire why it was that, in deal 2, ACLM was willing to pay €230,850.00 in full before any inspection had been carried out on its behalf – the inspection by L&A on 8 April 2016 in that case was expressed to be conducted on behalf of the Appellant and not ACLM.

if Mr Browne had carried out the appropriate DD in relation to XGC, he would have discovered that Mr Weeks, whom he assumed to be the representative of XGC at the time of the purchases, had ceased to be a director of the company on 15 June 2015 and ceased to be a shareholder of the company on 30 June 2015 and that, at the time of the relevant transactions, Mr Williams was the sole shareholder of the company and Messrs Williams, Edwards and Fadlallah were the sole directors of the company and had only recently been appointed. This should then have led him to ask why it was that Mr Weeks was apparently representing the company and to obtain some further information about Messrs Williams, Edwards and Fadlallah. A recent change in director was one of the matters specifically highlighted in the Respondents’ published material as being potentially indicative of a connection with MTIC fraud and, in our view, it should have led Mr Browne to make further enquiries in relation to the company;

if Mr Browne had carried out the appropriate DD in relation to GECX, he would have discovered that Mr Totolis – the person who had completed the account-opening form for GECX on 5 January 2016 – had ceased to be a director of the company on 20 August 2015 and that the sole director at the time of the transactions with GECX was Mr Patel. This should have led him to obtain some further information in relation to Mr Patel. A recent change in director was one of the matters specifically highlighted in the Respondents’ published material as being potentially indicative of a connection with MTIC fraud and, in our view, it should have led Mr Browne to make further enquiries in relation to the company; and

if Mr Browne had carried out the appropriate DD in relation to GECX, he would have noticed that the description of the company’s activities in the letter of introduction and certificate referred to in paragraph 84(1)(b) above were related to trading in commodities, with a core focus on metals, soft commodities, coal and LPG – all some distance away from dealing in the goods which were the subject of the transactions with GECX. Those descriptions of the activities of GECX in comparison to the transactions in question should have led him to make further enquiries as to why GECX was proposing to enter into the relevant transactions with the Appellant. A difference between the activities specified in registration documents and the activities represented by the transactions in question was specifically mentioned in the Respondents’ published material in relation to identifying deal chains connected with MTIC fraud and it ought to have led Mr Browne to enquire why GECX was entering into the transactions.

if Mr Browne had carried out the appropriate DD in relation to PLC, and, in particular, if he had carried out a Wigan check in relation to PLC as he had been advised by the Respondents to do, he would have discovered that Mr Chhiber, with whom he dealt in relation to the purchases, was not a director of the company and that Mr Degan, whose passport he was given by PLC, had ceased to be a director on 6 November 2013. He would also have discovered that the directors of the company had changed on 1 January 2016 and that the only director of the company at the time of the relevant purchases was Mr Summam. This should then have led him to make further enquiries in relation to Mr Summam. A recent change in director was one of the matters specifically highlighted in the Respondents’ published material as being potentially indicative of a connection with MTIC fraud and it ought to have triggered further enquiries; and

in addition, if Mr Browne had carried out the appropriate DD in relation to PLC, he would have noticed that the letter of introduction was dated 12 November 2010, some three years prior to the Appellant’s first starting to deal with PLC, was signed by Mr Degan, who had ceased to be a director of the company on 6 November 2013, and described the company’s activities as being “a long standing telecommunications company … [trading] in mobile phones and accessories” - some distance away from dealing in the goods which were the subject of the relevant transactions with PLC. The same description of the company’s activities could be seen in the company’s amended VAT registration certificate of 10 July 2012, which referred to the company as carrying on a trade of “retail mobile telephones”. Those descriptions of the activities of PLC in comparison to the transactions in question should have led him to make further enquiries as to why PLC was proposing to enter into the relevant transactions with the Appellant. A difference between the activities specified in registration documents and the activities represented by the transactions in question was specifically mentioned in the Respondents’ published material in relation to identifying deal chains connected with MTIC fraud and it ought to have led Mr Browne to enquire why PLC was entering into the transactions.

the Appellant knew that the purchases which are the subject of the appeal were connected with MTIC fraud; and

if that conclusion is not correct, the Appellant should have known that the purchases which are the subject of the appeal were connected with MTIC fraud.