Tribunal examines MTIC fraud claims
Missing Trader Intra-Community (MTIC) fraud focuses on the sales of mobile phones and computer software. MTIC fraud also known as ‘carousel fraud’ usually involves the small high value goods such as computer chips or mobile phones which are imported free of VAT from other EU member states. The goods are then sold in the UK for an amount including VAT but the fraudulent business never pays the VAT due to HMRC.
In a recent Tribunal case a company, Pacific Computers Limited (PCL), appealed against HMRC’s refusal to make a repayment of input tax of over £428k (for the VAT period 09/06). HMRC refused the repayment stating that they were satisfied that the transactions formed part of an overall scheme to defraud the Revenue and that the taxpayer knew or should have known of this.
The Tribunal asked the parties to the case to make their closing submissions in writing. The taxpayer’s closing submissions were submitted on time and were concise and to the point. HMRC, however, took six weeks to reply and produced a closing submission much of which we are told was of no assistance to the Tribunal. HMRC then went on to make further submissions much to the chagrin of the Tribunal.
Both parties agreed that MTIC fraud had taken place. The issue at hand was whether the directors of PCL knew or ought to have known on that the transactions in which the company were involved were connected with fraud. The Tribunal found the evidence from the taxpayer’s witnesses to be honest and reliable.
In reaching a decision the Tribunal Judge was critical of HMRC and stated that HMRC has failed to show either, …’actual knowledge of or involvement in fraud by PCL or that PCL had the means of knowledge or ought to have known that the only reasonable explanation of PCL’s involvement in the transactions was fraud.’ The taxpayer’s appeal was allowed and the input tax was recoverable.