“56. … a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods. 57. That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. 58. In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them. 59. Therefore, it is for the referring court to refuse entitlement to the right to deduct where it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, and to do so even where the transaction in question meets the objective criteria which form the basis of the concepts of ‘supply of goods effected by a taxable person acting as such’ and ‘economic activity’.”
“No, because the negotiations that took place which have occurred over a period of time, we have told them they are getting retail box 630s and the retail box product is a – can be a combination of step codes.”
“Two boxes with no Intel label. One box with split lot number. One box with wrong suffix. One box sealed with security tape”
“We were happy to receive either variant of it”
“… the period of transaction took several days. I know this because the goods were not available in the UK and were being imported from outside the UK into the UK before we could sell the product. I was told the goods were in transit. They were not in the UK at the moment.”
“… whatever the truth it was certainly the case that no VAT had been accounted for by any of Tamlex, Papoose or EMS in relation to Deal 3 goods; if therefore Papoose was the party initially liable for the VAT, it had not paid it, and Mr Bhutta never even denied that EMS was the defaulter in relation to the relevant goods. On the reasoning that it seems reasonable to suppose that no VAT invoice had been provided by Papoose to EMS, and that EMS had not even sought to establish any secondary basis for claiming a deduction for input tax, it appeared that one or other, or both, of Papoose and EMS had failed to pay VAT, both seemingly fraudulently.”
“23/07/06: 2,000X Semiconductors: Tamlex – Papoose – EMS – Connect Communications – Maximise Services – Culmain - Coracle Ventures – Sceptre Services – ASAP Trading GmbH.”
“Entered premises and met with SH. SH provided copy paperwork for some recent deals. … Took copies of various documents. … On returning to the office the paperwork was examined as follows: … 01/08/06: 18,000 x ADC Semiconductors Papoose SRO – EMS Marketing – Connect Communications Ltd – Maximise [sic] Services Ltd (MSL) – Culmain Ltd – Coracle Ventures Ltd – Sceptre Services Ltd.”
“Examining individual transactions on their merit does not … require them to be regarded in isolation without regard to their dependent circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part … :”
“For simplicity I will normally accept the accuracy of the percentages used in this table. However Dr Findlay makes some fundamental omissions and errors in this table …”
“This is totally irrelevant and is leading any reader to a false conclusion by mis-using the information to provide a solution.”
“Based on Dr Findlay’s data and assumption the figures would appear correct. However I have contested his ability to provide accurate information in the section on CPUs and he continues to be erroneous in this discussion on volume. He has concocted a very dubious method to establish the legitimate grey market in the UK. It appears he has been unable to obtain figures I have found from on-line sources and has ignored a complete sector which accounts for the majority of the sales, the OEM (original equipment manufacturer) market.”
“The recorded figures are designed to confuse the Tribunal into believing that any trade from Sceptre, a small company, was not legitimate as it was a significant proportion of the average monthly turnover.”
“The customer comes to us with an indicative price, a price that they have either purchased at or around previously … or where they can sell on to their customer and make a profit themselves so the customer in this instance would come to us with a price and we would have to make certain that we would purchase and make a profit, as you have quite rightly said, to make it commercially viable for us.”
“I would contact my supplier network and ask the question, ‘Do you have any indication of today’s prices on a range of products?’”
“I know this because the goods were not available in the UK and were being imported from outside of the UK into the UK before we could actually sell the product. I was told that the goods were in transit. They were not in the UK at the moment.”
“The Astra ADC is so obscure as to be impossible to price with any certainty”
“In due course we checked online and spoke at length to Coracle”
“We discussed it briefly, the nature of the product, with them”
“Our initial concern was the packaging”, and later: “… the most important thing to me was how the product was handled, how it was packaged …”
“The content of the AMI brochure and the Astra brochure is in most respects identical, save where references to AMI Semiconductor had been substituted with references to Astra Semiconductor. AMI Semiconductor is now a subsidiary of ON Semiconductor, a NASDAQ-listed semiconductor manufacturer … . “Both documents are generic in nature, describing products and manufacturing facilities, and do not contain any specific information relating to the products which were traded by the Appellant. Importantly it does not contain technical information sufficient to allow an engineer to utilise the products … insofar as the Appellant thought the Astra brochure to be genuine, it is of almost no use in determining either the technical properties of the product or an appropriate price.”
“The technical brief is not product specific (most categories of semiconductors such as CPUs, Digital Sound Processors and memory to be affected depending on the specific form of packaging used) and nor is it manufacturer specific. This means that the document, while helpful to those who anticipate physically handling and storing semiconductors, is of almost no use to those planning to simply trade in semiconductors. It is of almost no use in determining either the technical properties of the product or an appropriate price. “Despite the Astra Technical Brief bearing an Astra Semiconductor company logo in the header, another company, Intersil, is referred to within the text. Entering the search phrase (based on the document title) ‘Intersil guidelines surface mount devices’ into internet search engine Google, returns a link to an Intersil document as the top search result. I discovered that this Intersil document … contains text, tables and diagrams identical to and exactly as they appear in the Astra Technical Brief, except that the Intersil company logo is substituted for an Astra Semiconductor logo and for three other minor variations.”
“believed that the Astra Semiconductors brand of semiconductors were merely rebranded and repackaged versions of another manufacturer’s devices. Upon further investigation we have discovered that the ASI 124775-BGA is a rebranded version of Texas Instruments’ part number TMS320 C6412-600.”
“Very high risk; a director’s guarantee would be desirable”
“We rely and derived comfort from these verifications.”
“The results of the inspections are forwarded to all potential buyers of the stock”, and also the inspections took place before the goods were released to Sceptre. It appears probable to us that there was only one inspection done whenever the goods arrived at freight forwarders and copies of that report were passed to the various people in the chain, the evidence for this conclusion is that, in respect of one deal, two identical reports were obtained by the Commissioners relating to the same goods, but one was addressed to Culmain and the other to Sceptre. We also note that on several of the consignments there is reference in the report to damaged goods, a factor of which Sceptre appears to have taken no notice. Mr Rayer made no enquiry relating to an inspection report on Deal 2 which stated: “One box sealed with security tape”
“If there was any problem with any of the product that we sold to ASAP, we would have refunded any monies due to them.”
“51. Once it is appreciated how closely Kittel follows the approach the Court had taken six months before in Optigen , it is not difficult to understand what is meant when it said that a taxable person ‘knew or should have known’ that by his purchase he was participating in a transaction connected with fraudulent evasion of VAT. In Optigen the Court ruled that despite the fact that another prior or subsequent transaction was vitiated by VAT fraud in the chain of supply, of which the impugned transaction formed part, the objective criteria, which determined the scope of VAT and of the right to deduct, were met. But they limited that principle to circumstances where the taxable person had ‘no knowledge and no means of knowledge’ (paragraph 55). The Court must have intended Kittel to be a development of the principle in Optigen . Kittel is the obverse of Optigen . The Court must have intended the phrase ‘knew or should have known’ which it employs in paragraphs 59 and 61 in Kittel to have the same meaning as the phrase ‘knowing or having any means of knowing’ which it used in Optigen (paragraph 55). “52. If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind and carelessness, in the light of the principle in Kittel . A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises.”
“60. The test in Kittel is simple and should not be over-refined. It embraces not only those who know of the connection but those who ‘should have known’. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. The trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. He may properly be regarded as a participant for the reasons explained in Kittel .”
“… in determining what it was that the taxpayer knew or ought to have known the Tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and that what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them.”
“If he [i.e. the trader] chooses to ignore obvious inferences from the facts and circumstances in which he has been trading, he will not be entitled to deduct.”
“(1) Why was BSG, a relatively small company with comparatively little history of dealing in mobile phones, approached with offers to buy and sell very substantial quantities of such phones? (2) How likely in ordinary commercial circumstances would it be for a company in BSG’s position to be requested to supply large quantities of particular types of mobile phones and to be able to find without difficulty a supplier able to provide exactly that type and quantity of phone? (3) Was Infinity already making supplies direct to other EC countries? If so, he could have asked why Infinity was not making supplies direct, rather than selling to UK traders who in turn would sell to such other countries. (4) Why are various people encouraging BSG to become involved in these transactions? What benefit might they be deriving by persuading BSG to do so? Why should they be inviting BSG to join in when they could do so instead and take the profit for themselves?”
“37. In my judgment, there are likely to be many cases in which a participant in sophisticated fraud is shown to have actual or blind-eye knowledge that the transaction in which he is participating is connected with that fraud, without knowing, for example, whether his chain is a clean or dirty chain, whether contra-trading is necessarily involved at all, or whether the fraud has at its heart merely a dishonest intention to abscond without paying tax, or that intention plus one or more multifarious means of achieving a cover-up while the absconding takes place. “38. Similarly, I consider that there are likely to be many cases in which facts about the transaction known to the broker are sufficient to enable it to be said that the broker ought to have known that his transaction was connected with a tax fraud, without it having to be, or even being possible for it to be, demonstrated precisely which aspect of a sophisticated multifaceted fraud he would have discovered, had he made reasonable inquiries. In my judgment, sophisticated frauds in the real world are not invariably susceptible, as a matter of law, to be carved up into self-contained boxes even though, on the facts of particular cases, including Livewire , that may be an appropriate basis for analysis. … “41. It is important to bear in mind although the phrase ‘knew or ought to have known’ slips evenly off the tongue, that when applied for the purpose of identifying the state of mind of a person who has participated in a transaction which is in fact connected with a fraud, it encompasses two very different states of mind. A person who knows that a transaction in which he participates is connected with fraudulent tax evasion is a participant in that fraud. That person has a dishonest state of mind. By contrast, a person who merely ought to have known of the relevant connection is not dishonest, but has a state of mind broadly equivalent to negligence. “42. The distinction between dishonesty and negligence is of fundamental importance, even in cases such as the present where proof of either of them will suffice for the opposing party’s purpose.”
“56. According to the Genius Holding judgment, the information in the invoice does not have as much weight as the reality of the taxable transaction, at least with regard to exercise of the right to deduct. The same question may arise in the present case with reference to the taxable person’s obligation to pay VAT. “57. On this point, my view is that the invoice should preserve its function of documentation. My reason for proposing that the Court should thus limit the scope of its previous case-law is no different from that which inspired the solution adopted in this case: to discourage tax evasion.”
“There must therefore be a supply for output tax to be chargeable and even if an invoice is issued in advance of a proposed sale, tax cannot be chargeable if for some reason the supply does not take place. “Section 73(1) enables the Commissioners to assess an amount of VAT due from a trader but whatever is due from the Appellant it cannot be VAT because of the absence of a supply. What in our view, paragraph 5 of Schedule 11 allows is for the Commissioners to recover what is due to them as VAT, by way of an assessment but what is otherwise due to them is recoverable as a debt to the Crown. “In our view the Commissioners are entitle to recover from the Appellant the sum of£3,675 being the amount shown as VAT on the invoice but this is recoverable as a debt to the Crown and not by way of an assessment to VAT.”
“In the light of the foregoing it is apparent that traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud, be it the fraudulent evasion of VAT or other fraud, must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT.”
“109 Examining individual transactions on their merit does not … require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the Tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and “similar fact” evidence. That is not to alter its character by reference to earlier or later transactions but to discern it.” … “111. Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and that what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all them.”