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Tribunal dismisses carousel fraud appeal

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4th Jul 2012
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The upper tier tax tribunal has upheld the principle that companies caught up in missing trader fraud can be liable for VAT penalties.

The case, My Secrets Limited and the Commissioners for HMRC FTC/76/2011, relates to missing trader intra-community (MTIC) fraud involving mobile phones. Under MTIC fraud companies charge VAT and then disappear without paying VAT to HMRC.

In 2008, HMRC said that My Secrets, at the time a wholesale trader in mobile phones, was not entitled to deduct input tax of £819,280 for four deals in June and July 2006.

A first-tier tribunal ruled that My Secrets should have realised the fraud, given the short time frames, extensive free credit and lack of commercial substance.

My Secrets’ appeal against the tribunal’s decision focused on its July VAT return, arguing that HMRC had failed to show that the member of the appellant’s supply chain, V2 (UK) Ltd, which failed to account for VAT, had acted fraudulently.

In his ruling Justice Briggs said that the counsel acting for HMRC on the case had highlighted “other aspects of the evidence which, he submitted, once aggregated with such of the (first-tier) Tribunal’s findings as survived Mr Brown’s criticism, amply justified the conclusion that the appellant ought to have known that the June transactions were connected with fraud.  I agree.”

Justice Briggs dismissed the appeal by My Secrets, which will have to pay HMRC’s costs of the appeal.

It is HMRC’s second tribunal victory on missing trader fraud this year. Earlier this year, HMRC won a separate tribunal case (the Commissioner for HMRC and Greener Solutions Limited, about missing-trader fraud.

The ruling overturned a decision in the company’s favour by the first-tier tribunal.

Mobile phone recycling specialist Greener Solutions Limited (GSL) claimed that it was unaware of the MTIC fraud taking place when it had bought mobile phones and sold them as exports.

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