Key Facts
- •PPX Metal Management Ltd appealed HMRC's decision to deny input tax deduction on scrap metal purchases.
- •The denial affected £3,570,441.99 of input tax claimed over several VAT periods.
- •The purchases were from 11 suppliers, all subsequently identified as fraudulent defaulters.
- •HMRC argued PPX knew or should have known the purchases were connected to VAT fraud.
- •PPX's sole director, Paul Pearce, gave evidence.
- •PPX acknowledged deficiencies in its due diligence but denied knowledge of the fraud.
Legal Principles
Taxable persons who knew or should have known their transactions were connected to fraudulent VAT evasion are not entitled to input tax deduction.
Council Directive 2006/112/EC, Articles 167, 168, 273; Value Added Tax Act 1994, ss 24-26
The Kittel principle: Knowledge or means of knowledge of a connection to fraudulent VAT evasion is the key test for denying input tax deduction.
Axel Kittel v Belgium and Belgium v Recolta Recycling SPRL (C-439/04 and C-440/04); Mobilx Ltd v HMRC [2010] EWCA Civ 517; Mahagében kft v Nemzeti Adó- és Vámhivatal; Fonecomp Limited v HMRC [2015] EWCA Civ 39; Davis and Dann Ltd v HMRC [2016] STC 126; AC (Wholesale) Limited v HMRC [2017] UKUT 191 (TCC)
The burden of proof is on HMRC to show, on the balance of probabilities, that the taxpayer knew or should have known of the connection to VAT fraud.
HMRC v Citibank NA, E Buyer UK Limited [2017] EWCA 1416 (Civ)
Absence of contemporaneous documentation can be considered when assessing witness credibility.
Wetton v Ahmed [2011] EWCA Civ 610; Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm); Martin v Kogan [2019] EWCA Civ 1645
Outcomes
Appeal dismissed.
The Tribunal found that PPX knew that its transactions were connected with fraudulent VAT evasion, based on the totality of the evidence, including inadequate due diligence, repeated warnings from HMRC, and inconsistencies in Mr Pearce's testimony.