“Our investigations, so far, would appear to indicate that in the period of time that your client states that he has been selling vehicles to Ireland, three of his customers have been deregistered by the Irish authorities. This raises serious concerns for HMRC, it is important for us to have a clear understanding of the checks and due diligence carried out by your client and the business practices which have been adopted…I have received information from other HMRC colleagues that some of the vehicles your client is claiming to have purchased from UK suppliers and sold to customers in Eire have appeared in supply chains elsewhere; that is to say that other UK VAT registered businesses are also claiming input tax and applying zero rating on the same vehicles within a relatively short period of time.”
“54. If the referring court were to reach the conclusion that the taxable person concerned knew or should have known that the transaction which it had carried out was part of a tax fraud committed by the purchaser and that the taxable person had not taken every step which could reasonably be asked of it to prevent that fraud from being committed, there would be no entitlement to exemption from VAT. 55. In light of all the foregoing considerations, the answer to Questions 1 and 2 is that art 138(1) of Directive 2006/112 is to be interpreted as not precluding, in circumstances such as those of the case before the referring court, refusal to grant a vendor the right to the VAT exemption for an intra-Community supply, provided that it has been established, in the light of objective evidence, that the vendor has failed to fulfil its obligations as regards evidence, or that it knew or should have known that the transaction which it carried out was part of a tax fraud committed by the purchaser, and that it had not taken every reasonable step within its power to prevent its own participation in that fraud.”
“49. In the light of the foregoing considerations, it is, in principle, the responsibility of the national authorities and courts to refuse the benefit of the rights laid down by the Sixth Directive when they are claimed fraudulently or abusively, irrespective of whether those rights are rights to a deduction, to an exemption or to a VAT refund in respect of intra-Community supplies, as at issue in the case in the main proceedings. 50. It must further be noted that, according to settled case-law, that is the position not only where tax evasion has been carried out by the taxable person itself but also where a taxable person knew, or should have known, that, by the transaction concerned, it was participating in a transaction involving evasion of VAT carried out by the supplier or by another trader acting upstream or downstream in the supply chain (see to that effect, inter alia, judgments in Kittel and Recolta Recycling , EU:C:2006:446 , paragraphs 45, 46, 56 and 60, and Bonik , EU:C:2012: 774, paragraphs 38 to 40).”
“69…the Sixth Directive must be interpreted as meaning that a taxable person who knew, or should have known, that, by the transaction relied on as a basis for rights to deduction of, exemption from or refund of VAT, that person was participating in evasion of VAT committed in the context of a chain of supplies, may be refused the benefit of those rights, notwithstanding the fact that the evasion was carried out in a Member State other than that in which the benefit of those rights has been sought and that taxable person has, in the latter Member State, complied with the formal requirements laid down by national legislation for the purpose of benefitting from those rights”
“[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’. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a 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 . [60] The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his fraudulent purchase took place was that it was a transaction connected with such fraudulent evasion.”
“29. In our view, Mr Brown’s submissions place a weight on the words used by Moses LJ in Mobilx that they cannot bear. Moses LJ was clear that the test in Kittel was a simple one that should not be over refined. It is, to us, inconceivable that Moses LJ’s example of an application of part of that test, the ‘no other reasonable explanation’, would lead to the test becoming more complicated and more difficult to apply in practice. That, in our view, would be the consequence of applying the interpretation urged upon us by Mr Brown. In effect, HMRC would be required to devote time and resources to considering what possible reasonable explanations, other than a connection with fraud, might be put forward by an appellant and then adduce evidence and argument to counter them even where the appellant has not sought to rely on such explanations. That would be an unreasonable and unjustified evidential burden on HMRC. Accordingly, we do not consider that HMRC are required to eliminate all possible reasonable explanations other than fraud before the FTT is entitled to conclude that the appellant should have known that the transactions were connected to fraud. 30. Of course, we accept (as, we understand, does HMRC) that where the appellant asserts that there is an explanation (or several explanations) for the circumstances of a transaction other than a connection with fraud then it may be necessary for HMRC to show that the only reasonable explanation was fraud. As is clear from Davis & Dann , the FTT’s task in such a case is to have regard to all the circumstances, both individually and cumulatively, and then decide whether HMRC have proved that the appellant should have known of the connection with fraud. In assessing the overall picture, the FTT may consider whether the only reasonable conclusion was that the purchases were connected with fraud. Whether the circumstances of the transactions can reasonably be regarded as having an explanation other than a connection with fraud or the existence of such a connection is the only reasonable explanation is a question of fact and evaluation that must be decided on the evidence in the particular case. It does not make the elimination of all possible explanations the test which remains, simply, did the person claiming the right to deduct input tax know that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT or should he have known of such a connection.”
“There is no business activity carried out at the address given. The trader has gone missing. Per information this taxpayer now resides in Northern Ireland.”
“(1) Tax payer is no longer resident at the premises. There are new tenants residing there and when I called there was a large volume of un-opened mail for David McMahon. The current tenant had never heard of DM as he was not the owner of the property. (2) VAT assessments have been raised and issued against DM. He has not appealed or paid these and I am in the process of writing off this debt as it is unrecoverable. (3) DM has been de-registered for VAT as of 13/02/13. This was backdated to 01/06/12. (4) DM is not a company official of any other companies in Ireland per our records.”
“…The issue is whether there is, in the words of paragraph [59] of Kittel, ‘fraudulent evasion of VAT’. It seems to us that this will be the case where, as a result of fraud, the State does not receive the VAT it ought to have received had the relevant legislation been complied with by the trader. The question of whether or not an assessment has been made is irrelevant.”
“The primary focus of my business has always been service and repair work, the routine servicing and maintenance of motor cars and repairing damaged ones… Taylors is an accredited and approved service and repair centre for Range Rover, Land Rover, Jaguar and Renault.”
“…the opportunity arose around August/September [2011] about three years after Taylors and Laurie [Kempster] had begun doing car sales together. I was told by Laurie that he had a contact, Mike Fay, who was working for someone called Alan Simpson, and they were looking to source cars in the UK for car dealers in Ireland. Laurie told me that he had known Mike Fay for many years and had sold some cars to him in the past.”
“From the evidence to support their repayment claims, Taylors provided the following information to form the basis of their due diligence checks: --A vehicle history check based on 27/78 vehicles that Taylors purchased & sold. From these 27 vehicles, all these checks were undertaken between 19-134 days after the vehicles were sold to their customers. David McMahon T/A DM Cars: -- Taylors provided HMRC David McMahon’s drivers licence as a form of due diligence in 8/76 transactions involving the sale of vehicles to David McMahon T/A DM Cars. Zoe Brown T/A NS Cars: -- Taylors provided HMRC a VIES VAT Number Validation print taken from the European Commission VIES. This confirms the company’s VAT number. The PPOB of the trader is confirmed as 62 Cord Rd, Drogheda, County Louth, Dated15/05/2012 , However --The Europa Site Validation Response sheet showed the PPOB based at The Glen, Trinity Gardens, Drogheda, County Louth, Dated09/02/2012 -- An email from NS Cars Dated 09/02/12 confirms NS Cars based at 11, The Glen, Trinity Gardens, Drogheda, Co Louth, which shows inconsistent results on the due diligence undertaken & Taylors did not seek clarification on. Tracey Simpson T/A M3 Car Sales: -- There is no evidence in Taylors business records to confirm any due diligence was carried out on this trader. However Taylors did verify Tracey Simpson T/A M3 Car Sales via the Wigan Verification Team on the 26/4/13, after the phone MTIC education to Jeremy Taylor dated 28/02/13 and after the hand delivered Public Notice 726 on Joint & Several liability for unpaid VAT.”
“Laurie got some information about these Irish dealers from his conversations with Mike Fay and Alan Simpson…Laurie would have told me some of that information at the time, for example I knew that Tracey Simpson was Alan Simpson’s wife, but I would not have been chasing Laurie for every detail of what he was told by Mike Fay and Alan Simpson…”
“David McMahon was a nephew of Alan Simpson. He lived in East Dublin. Alan Simpson told me that as a family favour he was trying to teach David McMahon the car sales business and set him up in it. He would be in the office at the Kells Road site sometimes, but he was a young guy and he did not seem to have much of a clue about the business.”
“… [NS, M3 and Alan Simpson] are totally connected and considered to be totally linked to highly suspect transactions involving the acquisition of second hand motor vehicles from the UK and onward sale to VAT Registered main motor dealers in this State and/or despatched again to the UK. It is considered that Alan Simpson is the orchestrator of these transactions.” (2) Mr Fay, who acted for Mr Simpson, gave evidence that Alan Simpson controlled and effectively ran the businesses of all three buyers. He stated as follows: “As far as I know Tracey Simpson, David McMahon and Zoe Brown were never involved in negotiating the purchases and sales of the cars. It seemed to me that Alan Simpson did all the bookkeeping that needed to be done for these businesses… Alan Simpson also handled all the money for M3 Car Sales, DM Car Sales and NS Cars. He had control of their business bank accounts. Each business had its own business bank account and Alan Simpson was able to access all the accounts via the internet…” (3) Mr Taylor’s evidence in cross-examination was that at the time of the sales Taylors knew that notwithstanding the ostensible buyers they were “selling to Alan Simpson”
“Q. What did you know about Alan Simpson at this time, in the middle of 2012? A. He was a motor trader in the south of Ireland. Q. Anything else? A. No. Q. What was his background? A. His background, he was a failed businessman, as a lot of people were in Ireland at that time, and he was married to Tracey Simpson and he was trading under Tracey Simpson’s name. Q. What checks did you do on him? A. Personally none. Q. What checks did you cause to be done on him? A. What checks… Q. This is a failed businessman who you are about to send a large amount of cars, prestige names, to him? A. Personally I didn’t make any checks. Q. And you didn’t ask anybody to do any on your behalf? A. I trust the people I employ. Q. Did you instruct them to check him out? A. No, I did not. I assumed they had. Q. There was no contract with him, was there? A. No sir, there was not. Q. What were the terms of business? A. Handshake.”
“129. GRCS was immediately proximate to missing traders in 16 transactions, and at one remove in the remaining two. Even accepting that proximity, in and of itself, is not conclusive of knowledge or means of knowledge, we are bound to note that GRCS and Mr Mullan seemed, at best, to be completely indifferent to the bona fides of the persons with whom GCRS was actually, or ostensibly, dealing. This is particularly important given that the dealing was not of ‘dematerialised’ assets, with counter-parties known only through email or online, but was ostensibly with physical assets, namely vehicles, which were being physically moved from place to place, through GRCS’s hands, and by persons with whom Mr Mullan was coming into contact.”
“Q…You knew this trade would not work unless you were able to zero rate, didn’t you? A. It wasn’t that we were—we weren’t relying on the VAT as a profit centre. We were invoicing the cars zero rated as we were obliged to do and we were basing our profit from the net price of the car. Q. If Taylors had to pay the VAT on these sales you would be out of pocket, wouldn’t you? A. Well, of course. Q. You would be making a loss on each car? A. Well, we wouldn’t have done that, clearly.”
“Q. Who are Altmore Cars? Who did you think they were? A. I don’t know, sir. Q. Why were they paying for DM’s cars? A. I cannot answer that question. Q. Where were they based? Weren’t you interested to know? A. I was not. Q. As far as you were concerned, DM Cars’ onward customers were large Southern Irish car dealers called Meridian or Kingstown? A. The great proportion of the onward sales. This isn’t to say other sales weren’t carried out elsewhere. Q. There were no third party payments from Meridian or Kingstown, were there? A. Not as far as I’m aware but I wouldn’t have been aware of that.”
“Q. So when did you become aware that fraudsters were using high value cars as a commodity in which to commit MTIC fraud? A. Well, from [27 September 2017 ] probably about 3 years ago.”
“Despite the problems that had occurred Taylors intended to remain in the business of selling cars. After how complicated the situation had become I took the view it would be better to set up a separate company to handle that side of the business. Taylors (Sales) Limited was incorporated on16 April 2013 and a VAT1 application was submitted to register it for VAT. At that point, the full extent of the VAT problems with car sales that had been made to Ireland was far from clear and so I thought selling cars to customers in Ireland would still be an opportunity the business would actively pursue. However, as it became apparent that nothing Taylors said or did was going to change HMRC’s mind, it was going to attack Taylors regardless, and the seriousness of HMRC’s allegations grew, those plans were abandoned. After HMRC’s refusal to register Taylors (Sales) Limited for VAT I did contemplate challenging that decision, but it was not worth spending time and money on that. Taylors just carried on selling cars in collaboration with Laurie in the same way it had been doing since 2008 and still does to this day.”
“Taylors did not take every reasonable step to prevent their company being involved in this tax fraud. This is evident by the fact that: --Taylors effectively “hid” their new main business activity from HMRC for nearly a year & It was only when a VAT officer opened an intervention into their repayment claim that this was discovered. Taylors therefore proceeded to trade under the HMRC radar in this high risk market area, & as a result without the benefit of education/advice/warnings on tax fraud… -- There was no sign of Taylors promoting vehicle sales as an activity on their website considering this business activity was effectively their main business activity making up 56% of their turnover in 10/12 and 59% of their turnover in 01/13.”
“93. VAT Notice 725 provides that valid commercial evidence that goods have been removed must be obtained and kept in order to zero-rate a supply of goods. That is a mandatory provision (‘must’). The evidence must be ‘clear’. 94. Notice 725 repeatedly refers to evidence showing that the vehicle ‘has’ been removed. This is suggestive that evidence that the vehicle ‘is going’ to leave is not, in and of itself, sufficient evidence of export. 95. Section 5.1 [ which does not have the force of law] says that ‘a combination’ of documents is called for. No single document is sufficient. The purpose of this is clear—the integrity of any individual document can be more readily, reliably, and effectively tested when it is part of a suite of documents. 96. We acknowledge that some of the items mentioned in VAT Notice 725 are not applicable to motor vehicles. But that does not affect the purpose of the items of evidence referred to in VAT Notice 725 which are so applicable. … 99. The overarching aim of VAT Notice 725 is so that a paper trail can be created which gives ‘clear’ evidence that the goods (or, as in this case, the vehicle) have indeed left the UK and hence the sale can be validly treated as zero-rated. The conditions are laid down to ensure the correct and straightforward application of zero-rated exemptions, and to prevent evasion, avoidance or abuse.”