“61... Where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that by his purchase, he was participating in a transaction connected with the fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.”
“47 Each transaction must be regarded on its own merits and the character of a particular transaction in the chain cannot be altered by earlier or subsequent events. ….. 51 Transactions which themselves are not vitiated by VAT fraud constituted supplies of goods or services, and where an economic activity within the relevant legislation, where they fulfil the objective criteria on which the definitions of those are based, regardless of the intention of the trader other than the taxable person concerned, involved in the chain of supply, and/or the possible fraudulent nature of another transaction the chain, prior or subsequent to the transaction carried out by the taxable person of which the taxable person had no knowledge and no means of knowledge. …… 55 The right to deduct input VAT by a taxable person who carries out such a transaction can XXX be affected by the fact that in the chain of supply, of which those transactions form part, another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having means of knowing.”
“43. A person who has no intention of undertaking an economic activity but pretends to do so in order to make off with the tax he has received on making a supply, either by disappearing or hijacking a taxable person's VAT identity, does not meet the objective criteria which form the basis of those concepts which limit the scope of VAT and the right to deduct (see Halifax § 59 and Kittel § 53). A taxable person who knows or should have known that the transaction which he is undertaking is connected with fraudulent evasion of VAT is to be regarded as a participant and, equally, fails to meet the objective criteria which determine the scope of the right to deduct.”
“59. 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”
“[84] ….circumstantial evidence …. will indicate that a trader has chosen to ignore the obvious explanation as to why he was presented with the opportunity to reap a large and predictable reward over a short space of time. [85] A trader who chooses to ignore circumstances, which can only reasonably be explained by virtue of the connection between his transactions and fraudulent evasion of VAT participates in that fraud and, by his own choice, deprives himself of the right to deduct input tax.”
“[109] Examining individual transactions on their merits does not, however, 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....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...”
“[56] In the same way, a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with the 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.”
“[96] In my judgment there is no principle which requires HMRC to acknowledge a claim to repayment to the extent that the claim exceeds HMRC’s tax loss. Firstly…the correct unit of fiscal analysis is not th entire chain by the individual transaction. …The question is accordingly whether the taxpayer has or does not have the right to decuct or reclaim his input tax in respect of an individual transaction. Consideration of this question does not justify recourse to the overall fiscal impact on HMRC of all the transactions in the chain. [97] Secondly, none of the statements in Kittel suggest that the right is lost only to the extent that tax is lost elsewhere in the chain. … but once it is established that a taxpayer has, by his purchase, participated in the fraudulent evasion of VAT, it seems to me to be impossible to argue that, by withholding repayment of VAT in respect of that very purchase the taxpayer is being subjected to a disproportionate remedy. In fact, to use the VAT legislation to achieve any benefit from such a purchase seems to me to be wrong in principle. [98] Thirdly, although fiscal neutrality is a fundamental feature of the system of VAT….the fiscal neutrality of an individual transaction will, as Kittel shows, have to give way to the objective of combating fraud. [99] It seems to me that the objective of not recognising the right to repayment is not simply to ensure that the exchequer is not harmed by fraud: the objective includes combating fraud and discouraging taxpayers from entering into transactions of this nature. In that context, considerations of fiscal neutrality of the impugned transaction are, it seems to me, besides the point.”
“[53]....in a situation such as that at issue in the main proceedings, the right to deduct may be refused only where...the addressee of the invoice knew or should have known that the transaction relied on as a basis for he right to deduct was connected with a fraud committed by the issuer or another operator supplying inputs in the chain of supply.”
“[11]...if the [CJEU] intended to cut down the principle it had identified in Kittel and was changing the law, it would have said so. On the contrary it was not. It was merely applying it.”
“[102] In my judgment in a case of alleged contra-trading, where the taxable person claiming repayment of input tax is not himself a dishonest co-conspirator, there are two potential frauds: i) The dishonest failure to account for VAT by the defaulter or missing trader in the dirty chain; and ii) The dishonest cover-up of that fraud by the contra-trader. [103] Thus it must be established that the taxable person knew or should have known of a connection between his own transaction and at least one of those frauds. I do not consider that it is necessary that he knew or should have known of a connection between his own transaction and both of these frauds. If he knows or should have known that the contra-trader is engaging in fraudulent conduct and deals with him, he takes the risk of participating in a fraud, the precise details of which he does not and cannot know.....”
“[50] ...HMRC must establish that the fraudulent evasion of VAT took place, and if the form of fraud involved was contra trading then that is what they have to prove. But it is a misconception to consider that they must also establish that the party seeking to deduct input tax...should reasonably have known that its own transaction was connected to (or involved in) this particular form of missing trader fraud as opposed to another form....”
“Ownership of the goods remain the property of Cellular Solutions (T Wells) Ltd until full payment has been made.”
“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it.”
“The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. These considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing.”