“[51] … 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 the right to deduct the input VAT. [52] It follows that, where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void, by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller, causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud.” … [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 do so even where the transaction in question meets the objective criteria which form the basis of the concept of “supply of goods effected by a taxable person acting as such” and “economic activity”. … [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.” 13. The decision of the ECJ in Kittel was considered in Mobilx Ltd (in Administration) v HMRC; HMRC v Blue Sphere Global Ltd (“BSG”); Calltel Telecom Ltd and another v HMRC[2010] STC 1436 (“ Mobilx ”) in which Moses LJ, giving the judgment of the Court of Appeal, said: “[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”
“It is plain that if HMRC wishes to assert that a trader's state of knowledge was such that his purchase is outwith the scope of the right to deduct it must prove that assertion.” 19. Although the standard of proof was not considered in Mobilx it is accepted that the civil standard, the balance of probabilities, applies (see Re B[2009] 1 AC 1 ). As Lady Hale, giving the judgment of the Supreme Court in Re S-B (Children)[2010] 1 AC 678 , said at [34]: “… there is no necessary connection between the seriousness of an allegation and the improbability that it has taken place. The test is the balance of probabilities, nothing more and nothing less.” 20. With regard to the misdeclaration penalty, s 63 VATA, as applicable at the material time provided: 63 Penalty for misdeclaration or neglect resulting in VAT loss for one accounting period equalling or exceeding certain amounts (1) In any case where, for a prescribed accounting period— (a) a return is made which understates a person's liability to VAT or overstates his entitlement to a VAT credit, or (b) an assessment is made which understates a person's liability to VAT and, at the end of the period of 30 days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners, and the circumstances are as set out in subsection (2) below, the person concerned shall be liable, subject to subsections (10) and (11) below, to a penalty equal to 15 per cent of the VAT which would have been lost if the inaccuracy had not been discovered. (2) The circumstances referred to in subsection (1) above are that the VAT for the period concerned which would have been lost if the inaccuracy had not been discovered equals or exceeds whichever is the lesser of£1,000,000 and 30 per cent of the relevant amount for that period. (3) Any reference in this section to the VAT for a prescribed accounting period which would have been lost if an inaccuracy had not been discovered is a reference to the amount of the understatement of liability or, as the case may be, overstatement of entitlement referred to, in relation to that period, in subsection (1) above. (4) In this section “the relevant amount”, in relation to a prescribed accounting period, means— (a) for the purposes of a case falling within subsection (1)(a) above, the gross amount of VAT for that period; and (b) for the purposes of a case falling within subsection (1)(b) above, the true amount of VAT for that period. (5) In this section “the gross amount of tax”, in relation to a prescribed accounting period, means the aggregate of the following amounts, that is to say— (a) the amount of credit for input tax which (subject to subsection (8) below) should have been stated on the return for that period, and (b) the amount of output tax which (subject to that subsection) should have been so stated. (6) In relation to any return which, in accordance with prescribed requirements, includes a single amount as the aggregate for the prescribed accounting period to which the return relates of— (a) the amount representing credit for input tax, and (b) any other amounts representing refunds or repayments of VAT to which there is an entitlement, references in this section to the amount of credit for input tax shall have effect (so far as they would not so have effect by virtue of subsection (9) below) as references to the amount of that aggregate. (7) In this section “the true amount of VAT”, in relation to a prescribed accounting period, means the amount of VAT which was due from the person concerned for that period or, as the case may be, the amount of the VAT credit (if any) to which he was entitled for that period. (8) Where— (a) a return for any prescribed accounting period overstates or understates to any extent a person's liability to VAT or his entitlement to a VAT credit, and (b) that return is corrected, in such circumstances and in accordance with such conditions as may be prescribed, by a return for a later such period which understates or overstates, to the corresponding extent, that liability or entitlement, it shall be assumed for the purposes of this section that the statements made by each of those returns (so far as they are not inaccurate in any other respect) are correct statements for the accounting period to which it relates. (9) This section shall have effect in relation to a body which is registered and to which section 33 applies as if— (a) any reference to a VAT credit included a reference to a refund under that section, and (b) any reference to credit for input tax included a reference to VAT chargeable on supplies, acquisitions or importations which were not for the purposes of any business carried on by the body. (9A) This section shall have effect in relation to a body which is registered and to which section 33A applies as if— (a) any reference to a VAT credit included a reference to a refund under that section, and (b) any reference to credit for input tax included a reference to VAT chargeable on supplies, acquisitions or importations which were attributable to the provision by the body of free rights of admission to a museum or gallery that in relation to the body was a relevant museum or gallery for the purposes of section 33A. (10) Conduct falling within subsection (1) above shall not give rise to liability to a penalty under this section if— (a) the person concerned satisfies the Commissioners or, on appeal, a tribunal that there is a reasonable excuse for the conduct, or (b) at a time when he had no reason to believe that enquiries were being made by the Commissioners into his affairs, so far as they relate to VAT, the person concerned furnished to the Commissioners full information with respect to the inaccuracy concerned. (11) Where, by reason of conduct falling within subsection (1) above— (a) a person is convicted of an offence (whether under this Act or otherwise), or (b) a person is assessed to a penalty under section 60, that conduct shall not also give rise to liability to a penalty under this section . Evidence 21. In addition to the extensive documentary evidence, which included correspondence between the parties, reports of visits by HMRC officers, deal sheets etc, we heard from the following witnesses on behalf of HMRC: (1) Patricia Wilson, who before her retirement from HMRC in 2016, had from 2009 been the allocated officer for Vale in which capacity she had undertaken visits to the company and met with its senior employees; (2) Robert Payne, a Higher Officer of HMRC and a member of the Missing Trader Intra-Community (“MTIC”) Fraud Team whose evidence concerned Par Three Limited (“Par Three”); and (3) Richard Lowish, an expert witness who before he retired in 2010 was the General Manager and Director of Englehard Metals Limited, a precious metals trading company established in 1983, where he was responsible for all its dealing and commercial activities, including precious metal market making and the soliciting of professional as well as customer/supplier business. Mr Lowish organised and was responsible for Englehard Metals Limited, Moscow, a representative office of the company that procured precious metal supplies originating in what was the Soviet Union. Between 1997 and 1999 he was Vice Chairman of the London Platinum and Palladium Market (“LPPM”) becoming its Chairman from 1999 to 2003. From 2004 until 2010 he was Director of the London Platinum and Palladium Fixing Company Limited. Mr Lowish had previously been Vice President in charge of forward trading and funding metals at the London branch of the First National Bank of Boston and Vice President for precious metals marketing and client trading at the London branch of Chase Manhattan Bank. In evidence he accepted that between 2008 and 2010 the LPPM did not issue any guidelines to the market as to what steps to take in terms of proper due diligence in the Platinum Group Metals (“PGM”) market. 22. In addition, as they were not disputed, the witness statements of the following HMRC officers was admitted in evidence: (1) Margaret Brown, a Higher Officer who had been employed by HMRC and its predecessor, HM Customs and Excise (“HMCE”), from 1993. Since 2005 she had been concerned with the detection and prevention of MTIC fraud. Her evidence was in relation to Baio Trading Limited (“Baio”); (2) Timothy Cook, a Higher Officer and part of the MTIC Fraud Team based in Cardiff who has been employed by HMRC and previously by HMCE since 2004. His evidence concerned East 2 West (UK) Limited (“East2West”); (3) Judith Elmer, an officer of HMRC and HMCE from 1988. Since 2002 she has been involved in the verification of VAT returns filed by traders in high risk areas such as mobile phones, computer processing units and metals. Her evidence was in respect of S & G Metals Limited (“S&G”); and (4) Joanne Keeley, an officer of HMRC and its predecessor the Inland Revenue since 2003 and currently a member of an MTIC Team which is part of the Fraud Investigation Service based in Bootle, Liverpool. Her evidence was in relation to Star Alloy Limited (“Star”). 23. We were somewhat disappointed that comment and submissions on the conclusions to be drawn from the evidence have yet again crept into the witness statements of HMRC officers in this case. However, adopting the approach of Proudman J in HMRC v Sunico[2013] EWHC 941 (Ch) at [29] and the Tribunal in various case such as Megantic Services Ltd v HMRC [2013] at [15], CF Booth v HMRC[2017] UKFTT 813 at [10] and Elbrook Cash and Carry v HMRC[2018] UKFTT 252 at [24], we have ignored such expressions of opinion and submissions. 24. The following witnesses gave evidence on behalf of Vale: (1) Denuta Kenwright, who has been employed by Vale for over 31 years and since 1999 has been its Sales Manager reporting to David Maynard (see below). Her role includes checking the market prices of platinum and palladium on a daily basis, reviewing the quantities of metal bought and sold by Vale, assessing the market conditions that may affect the price of platinum and palladium by obtaining information from various sources eg economic indicators in the news, speaking to customers, suppliers and consumers and analysis of competitors. She is also responsible for drafting reports on the secondary toll refining business as requested by the Marketing Manager, speaking to customers about refining opportunities and negotiating contractual terms with customers, suppliers and consumers/traders; (2) Samuel Rhodes, although no longer employed by Vale was its Refinery Accountant between July 2007 and August 2009, a role in which he was responsible for the operation of Vale’s Acton Refinery. From April 2009 Mr Rhodes became Vale’s Business Manager and was promoted to its Finance Manager in 2014 a role he held until he ceased employment with the company in November 2017; (3) James Wills, an employee of Vale for over 30 years with the last 15 years being in the production department. His evidence concerned the refining process. He explained how scrap is sampled and tested before entering the production process for refining. He also dealt with the types of materials refined and the materials received at the refinery during the period with which the appeal is concerned; (4) David Maynard who, when he retired in 2008, had worked for Vale for 28 years. For his final nine years at Vale he was its Marketing Director; (5) David Sherwood, the Metal Accounting Section Leader at Vale who has been employed by the company for around 27 years. His evidence outlined the operation of Vale’s customer and supplier metal accounts and how metal is allocated and deducted from a customer or supplier account by Vale as well as how information received by Metal Accounting is used and verified; (6) Kenneth Williams, who before he retired in October 2017 was the Marketing Director of Vale succeeding Mr Maynard in 2008 having joined the company in 2003. From 2009, Mr Williams was involved in the reviewing of Vale’s due diligence; (7) Jeremy Coombes, a precious metals consultant who advises various clients, including the International Platinum Groups Metals Association about the PGM industry, gave expert evidence on the trading of metal products within the PGM trader market. He was previously employed (from 1987 to 2014) by Johnson Matthey plc becoming its general manger for marketing and publications where his role included promoting new applications and growing demand in existing applications for PGMs and providing information about PGMs to industry stakeholder. He gave expert evidence on market trends and supply and demand for PGM products globally; and (8) Philip Clewes-Garner, of Metal Recruiting Consulting Limited and PCG Commodity Consultants Limited an independent consultancy focussing on all precious metal products, gave expert evidence on the trading of precious metal products within the PGM trader market. He was previously employed by HSBC as an Associate Director with responsibility for physical precious metal business. Before that he was employed as the Precious Metals Sales and Marketing Manager with global responsibility for rebuilding market share at the BSI Inspectorate (part of the British Standards Institute (“BSI”)). Mr Clewes-Garner was Chairman of the LPPM from 1994 to 1996 and in 2008 becoming the only person to have taken this role on two occasions. Facts 25. Before setting out our findings of fact, it is convenient to first define and describe some of the less familiar (to us at least) terms and processes used in the refining industry: Assay: an involved test of a metal to determine its properties which involves the extraction and analysis of a sample. Fix price: the LPPM (see below) platinum and palladium quotation price which is published twice daily at 09:45 and 14:00, the AM and PM fix prices. Good Delivery or Good Delivery Status: platinum and palladium listed on the London and Zurich Good Delivery (“GLZD”) lists to be accepted in settlement of transactions. To meet the necessary specification for inclusion on the GLZD refiners and producers have to satisfy the LPPM Management Committee that their bars meet the stringent requirements set by the LPPM under which the metal must be in the form of a plate or ingot and have a purity of at least 99.95% platinum or palladium, bear the producer’s mark, the letters P or PD (depending on whether it is platinum or palladium), bear an individual number or mark, indicate the year of manufacture and be of good appearance, smooth with no sharp edges and free from cavities and easy to handle. The market trade in platinum or palladium is generally settled across metal accounts, similar to bank accounts, in which the metal is held in the vault of a recognised LPPM dealer. An ingot or plate that is no longer in the vaults of a recognised LPPM clearer may no longer be of Good Delivery status. When a member of the LPPM sells a Good Delivery plate or ingot to a non-market member and the metal leaves a good delivery vault it is generally treated as scrap (albeit of high purity) as LPPM members will not be willing to purchase, as Good Delivery, metal that has been stored other than in an authorised vault as there can be no certainty of the metal content or Good Delivery status. Although the metal content could be confirmed through assay, this is a physically intrusive process that would be likely to remove its Good Delivery status. LPPM: the London Platinum and Palladium Market is a trade association that acts as the co-ordinator for activities on behalf of its members and other participants in the London PGM market. A primary function of the LPPM is its involvement in the promotion of refining standards by maintenance of the LPPM Good Delivery List. There are two categories of LPPM membership, full and associate. Full membership is open to those companies that are recognised by the LPPM Management Committee as being currently engaged in trading and dealing platinum and palladium and also as being providers of additional services in the PGM market such as market making, clearing services, refining or manufacturing. Associate membership is open to companies recognised by the Management Committee as being currently engaged in the platinum and palladium industry and having an appropriate level of experience and net assets but do not offer the full range of services provided by full members. Companies which fail to meet the normal requirements of Full or Associate membership may, if recognised by the Management Committee as being involved with or offering support to the global platinum and palladium markets may be granted Affiliation status. PGMs: platinum group metals, which are sometimes referred to as the platinum group elements (PGEs) comprise the rare metals platinum (Pt), palladium (Pd), rhodium (Rh), ruthenium (Ru), Indium (Ir) and osmium (Os). PGMs naturally occur in nickel, copper and iron sulphide seams. These metals are noble (metals that are resistant to corrosion and oxidation), chemically less reactive materials and can be found in nature as native alloys consisting mainly of platinum. Scrap: not a pejorative term within the PGM industry but used to describe any item that is not in a form readily tradeable on the PGM dealer market. Scrap can include, but is not limited to, catalytic converters, jewellery scrap, dental alloy scrap, coins, bars and ingots and can include high purity ingots and plates that would have been Good Delivery status (see above) if they had not left an authorised vault. Spot price: the market price of platinum or palladium at a particular time of day between the AM and PM fix prices as published by the LPPM. XRF: a surface analytical technique, which is non-destructive, based on submitting samples of a given material to X-rays from a primary emissions fluorescence which are characteristic of the atoms contained within that material. Unlike a full assay it would not be possible to determine by an XRF alone, without drilling into the metal concerned, whether the piece of metal was plated with eg platinum or comprise entirely of that material. Background 26. Vale is a wholly owned subsidiary of Vale S.A., a global diversified metals corporation and one of the world’s largest mining companies with headquarters in Brazil. At the time with which the appeal is concerned Vale operated from two UK refining sites, Clydach in South Wales and Acton in West London. 27. The Clydach refinery produces around 40,000 tonnes of nickel products a year operating 24 hours a day 365 day a year. Its two main products are nickel pellet and powder which are sold in over 30 countries worldwide. The refinery at Clydach does not refine third party material but only materiel from Vale Canada (a wholly owned subsidiary of Vale S.A.) mining operations in Canada. However, it is the Acton refinery with which this appeal is concerned. It had its roots in the Mond Nickel Company which was incorporated in 1910. In 1919 having established the Clydach refinery it acquired premises in London to establish a laboratory and small refinery to refine PGMs from those process residues which resulted from refining nickel at Clydach. The PGM refinery then moved to Acton between 1924 and 1925. In 1929 the Mond Nickel Company merged with the International Nickel Company of Canada (“INCO”) to become INCO Europe Limited and the Acton refinery expanded to handle the additional capacity of the precious metal residues of INCO’s Canadian nickel and copper refining operations. 28. During the 1980s the Acton refinery was enlarged and expanded to be able to produce a million troy ounces per annum, double its previous capacity. To take advantage of this increased production capacity it was decided to pursue secondary feed materials from third parties to supplement the regular INCO concentrates. 29. On4 October 2006 Vale S.A. acquired INCO, including its subsidiary INCO Europe Limited which first changed its name to Vale Inco Europe Limited before changing it to its current name of Vale Europe Limited on6 August 2010 . 30. During the period with which this appeal is concerned the Acton refinery refined a range of precious metals and produced platinum, palladium, rhodium, ruthenium, and iridium from precious metal residues and also produced small quantities of gold and silver. The final products produced were in the form of a powdered “sponge”
“Global consumption of platinum fell slightly in 2005 to just over 7.5m ozs as increased demand for diesel autocatalysts did not compensate for losses in the jewellery industry, particularly in China. The market remained in very small deficit of around 50 ozs as supply increased by 4% to just under 7.5 ozs. Platinum started the year at$844 /oz trading up during the first seven months before breaking$900 on 1 st August. Continued investment buying moved the price up levels not seen for 25 years, reaching a high of$1,012 /oz on 12 th December before weakening to end the year at$958 /oz. … The palladium market remained in structural oversupply although investment buying on the back of the platinum price rally helped to move the price form$180 /oz at the beginning of the year to a high of$295 /oz in early December.” 41. The Directors, in their Report in the accounts for the year ended31 December 2006 , observed that the price for platinum which rose 14% during the year to$1,117 /oz, down from an all-time high of£1,335 /oz in May 2006, was “historically high and volatile” and that the price of palladium had also increased from$261 /oz at the beginning of the year to$324 /oz at its end notwithstanding a decrease in global consumption. 42. The Directors Report in Vale’s accounts for the year ended31 December 2007 refers to a 35% increase in the price of platinum in 2007 where at the end of the year it reached a price of$1,530 /oz. There was also a 9% increase in the price of palladium during 2007 to$363 /oz by31 December 2007 . 43. Vale’s31 December 2008 accounts record that: “PGM prices reached unprecedented levels in 2008 with Platinum rallying to a record high of$2,276 per troy ounce in March, only to retract to$756 in October, as a direct result of the shrinking global economy and declining demand in the automotive industry. … Despite the struggling world economy, Palladium demand increased in 2008 whilst global supplies decreased. The Palladium price mirrored Platinum price movements for most of the year, reaching a peak of$588 a troy ounce in March but slipping down to a low of$164 in December as concerns over the state of the auto industry arose. Platinum and Palladium ended the year at$899 and$183 respectively.” 44. New channels for metal appeared as entities sought to exploit the dramatic nature of the changes in price for PGMs and, although not mentioned in the reports of the directors in Vale’ s accounts, over the period concerned there was an influx of Russian PGM products into the market. Mr Williams explained that there had been no reference to the Russian PGMs in the accounts as Vale’s secondary toll business, although high in dollar value turnover, contributes little to its profitability and even less to the profitability of its parent, Vale S.A. He said that it was also necessary to appreciate that because of the extremely competitive nature of the toll business the comments, for which he was responsible, in the accounts did not go into any great amount of detail in relation to that part of the business. 45. The competitiveness and secrecy of the PGM industry was confirmed by Mr Wills, Mr Coombes and Mrs Kenwright who said that is was “common” to receive delivery documentation with materials from suppliers where third-party information had been in some way redacted. 46. Mr Williams explained Russia, which with South Africa accounts for over 90% of the world’s production of platinum and related metals, had aggressively stockpiled PGMs during the 1970s and 1980s but following the collapse of the Soviet Union in the 1990s had begun to sell some its stockpiles to obtain foreign exchange. However, even after this time stockpiles remained high and, as platinum and palladium were considered “strategic metals”, were tightly controlled with exporters subject to strict quota restrictions and limited to a few companies. Because such restrictions had an adverse effect on Russia gaining membership of the World Trade Organisation, in January 2007 a decree was signed by President Putin allowing unlimited export on all Russian PGM exports. However, an export licence was still required from the state-owned Russian diamond market, Almazyuelieexport, for PGMs to leave the country in any form. 47. Despite the abolition of quotas, from23 December 2008 certain forms of PGMs attracted export duty, in particular between 2008 and 2010 (the period with which this appeal is concerned) there was such duty at a rate of 6.5% on finished platinum bars and plates, unwrought or semi-finished platinum and palladium ingots (including bars) of 99.95% purity or greater and platinum and palladium sponge of 99.95% purity or greater. Additionally, the Russian state had the option of purchasing these products as an alternative to their being exported. However, before 2015 the export duty did not apply to anodes or liquid PGM salts/solutions. 48. In his evidence Mr Williams explained that ingots or plates produced in Russia originally of a Good Delivery status could be transformed into non-Good Delivery form by chemical transformation (dissolving in acid to produce liquid PGM slats) or by using the platinum of palladium to produce industrial anodes thereby avoiding the export duty. He understood that this may have happened in the case of PGMs acquired by Vale during this period. 49. Mr Coombes explained that he considered it unlikely that Russian anodes exported to outside markets in any reasonable quantity would have been used directly or indirectly for industrial purposes. He did not know of any end-use market in the UK for such high purity Russian anodes which in order to obtain full value would require refining and considered the transformation of such anodes by Vale to be consistent with normal commercial practice within the refining industry. Mr Coombes also explained that despite being labelled as a manufactured product in Russia once these enter the UK they are properly categorised as scrap as there is no longer a market for them and they will need to be refabricated for sale. 50. As recognised in the Report of the Directors in Vale’s accounts for the year ended31 December 2008 (see paragraph 43, above) there was a decline in the PGM market due to the global recession which Mr Williams described as, “unexpected and very sudden”
“Looking ahead to 2010, the analysts believe that the current economic indicators will support the PGM industry. The expectation is that, in terms of supply v demand, Platinum will stay closer to balance in 2010 with demand strengthening in the automotive sector but weakening in the jewellery market. Analysts estimations are between US$1,400 -US$1,900 for the remainder of 2010.” 53. The market trends described above were reflected in Vale’s trading during the period between January 2008 and April 2010, eg in the first nine months of 2008 Vale averaged 36 deals a month claiming input tax of approximately£1.609 million , but between October 2008 and April 2010, following the fall in the price of platinum and palladium described in the31 December 2008 accounts, the monthly average number of deals fell to 19 and the input tax claimed fell to an average of£341,000 per month. These market trends are also apparent in that 87% of the value of the input tax in dispute in this case had been incurred by Vale by September 2008. Contact with HMRC 54. On14 January 2008 HMRC wrote to Vale to explain that it was: “… still experiencing certain problems with businesses that wholesale commodities involved in Missing Trader Intra-Community (MTIC) VAT fraud. MTIC fraud may involve all types of VAT standard rated goods and services including high value, low volume electrical products.”
“New customers and suppliers are mainly on referral from those in the trade or from trader conferences. [Vale] do not actively go out looking for customers/suppliers because of the nature of the business. Any new customers/supplier has to fill in a form that includes contact details, bank details, invoice arrangements – if self-billing is requested the supplier must confirm this request in writing. A copy of the certificate of incorporation and VAT registration is provided. Most of their customers are regulars hat trade on the market.” 57. After describing the arrangements for transport of the goods and noting that a sample of all meta entering the refinery is analysed to check its quality and weight Officer Sagoo’s report states: “Trader made aware of due diligence and copy of VAT notice 726 provided. Trader contends that they were not aware that any metal purchased was tainted by MTIC fraud and request reassurance that they were carrying out required checks.” 58. A further visit to Vale by Officer Sagoo and three of her colleagues took place on2 April 2008 where they met with the then Business Manager, Sandra Small and David Sherwood of Vale. The report of the visit records that its purpose was to inform Vale of the “fraudulent activity in the precious metal market” and for HMRC to “to be informed of how the precious metal market operates.” 59. The visit report states (with emphasis as in stated in the report): “[Vale] informed how missing trader VAT fraud operates, [Vale] are familiar with this from the gold fraud of the 1980s. [Vale] have been informed that since the verification in the mobile/computer trade sectors and/or the derogation applying to these goods it seems that this fraud is now active in the precious metal trade sector. [Vale] has offered HMRC full co-operation in tackling this problem .”
“As stated previously [Vale’s] refining customers approach them for their services. [Vale] obtain name, address, bank details, companies house details and request references. There is no risk to [Vale] as they only pay their “customers” after the refining process is completed. There are different return rates for different metals. [Vale] will “return” 99%, there is a 0.5% loss in the processing and 0.5% loss known as the [Vale] “windfall”
“… relies heavily on the ability of fraudulent businesses to undertake trade in goods with other businesses that may be either complicit in the fraud, turn a blind eye or are not sufficiently circumspect about their trading connections”
“ 8.1 Checks you can undertake to help ensure the integrity of your supply chain The following are examples of checks you may wish to undertake to establish the integrity of you supply chain: 1) Undertaking reasonable commercial checks to consider the legitimacy of customers or suppliers. For example: · what is your customer’s/supplier’s history in the trade? · Are normal commercial arrangements in place of the financing of the goods? · Are the goods adequately insured? · What recourse is there if the goods are not as described? … 8.2 Checks carried out by existing businesses The following are example of specific checks carried out by existing businesses. These may also help you decide what checks you should carry out, but this list is not exhaustive and you should decide what checks you need to carry out before dealing with a supplier or customer: · obtain copies of Certificates of Incorporation and VAT registration certificates; · obtain copies of Certificates of Incorporation and VAT registration certificates; · verify VAT registration details with Customs and Excise; · obtain letters of introduction on headed paper; · obtain some form of trade reference, either written or verbal; · obtain credit checks or other background checks from an independent third party; · insist on personal contact with a senior officer of the prospective supplier, making an initial visit to their premises wherever possible; · obtain the prospective supplier’s bank details, to check whether: (a) payments would be made by a third party; and (b) that in the case of import, the supplier and their bank shared the same country of residence. · check details provided against other sources, eg website, letterheads, BT landline records 62. Mr Rhodes was unable to recall when he first became aware of Notice 726 but confirmed that he would, at some stage, have read it. Mr Sherwood also confirmed that he had read Notice 726 and had been aware of previous versions of the Notice but said that it was likely that this would have been after he had attended meetings with HMRC officers. 63. In April 2009 verification of Vale’s VAT returns for 04/09 and 07/08 to 12/08 was allocated to HMRC Officer Wilson who, in May 2009, was requested by her manager to amend the verification to include all VAT returns from 01/08. 64. HMRC wrote to Vale on19 August 2008 and30 September 2008 , describing Vale in both letters as, “a trader who deals in the buying and selling of Mobile Phones, Computer Processing Units or Other Goods from the European Community and from with the United Kingdom.”
“Rang Mr Matheson regarding [his] email. Confirmed that repayment had been made and that investigations were ongoing and that it was hopes [sic] that a visit to company would be made shortly to discuss activities and check records. Mr Matheson asked if there were any suppliers he should be concerned about or anything he should be doing. I explained that HMRC are currently looking at the supplier list previously supplied and that he should continue to carry out due diligence as per the advice given by the previous MTIC officers. I also asked for the company to contact me if any new suppliers approach them, Mr Matheson stated he would arrange for this to be done. Mr Matheson also agreed to send me the November sales and purchases listing for November 2008 asap.” 67. During a subsequent telephone conversation between Mr Matheson and Officer Wilson a visit to Vale was arranged for28 May 2009 . However, on7 May 2009 HMRC issued Vale with a “Post Repayment Verification of VAT Repayment Claims” letter which stated that Vale: “… has submitted VAT repayment returns for the periods ended 07/08, 08/08, 09/08, 10/08, 11/08 and 12/08. In order to assist you I am writing to you at this stage to explain why this claim has been selected for verification, how long this process might take, what you should expect from HM Revenue & Customs (HMRC), and what HMRC expects from you whilst this verification is taking place.”
“PW [Officer Wilson] explained that tax losses have been identified within some of the traced deal chains involving Vale in 2008 with net losses of£100 million , this is to be confirmed shortly via tax loss letters. Due to ongoing concerns HMRC have regarding this trade Vale’s 04/09 repayment claim has been withheld subject to an extended verification.”
“Suppliers come to Vale. Vale do not source suppliers (Vale term their suppliers as customers). There are only a handful of refineries in the world who specialise more in specific products eg gold could be of a high spec at another refinery. When a new supplier approach Vale, Vale issues their terms first and if agreed the registration process is started. All material is physically received. Vale claimed that 100% of the external feeds are refined. Larger customers may request for their goods (eg refined platinum) to be stored in Vale’s vault – Vale do not charge a fee to their larger suppliers for this service as these suppliers bring a lot of business into Vale. First point of contact = “Commercial department”
“… not a victimless crime. It is robbing the honest taxpayer of monies that could be used to fund essential public services” 73. On10 November 2009 HMRC issued two tax loss letters to Vale regarding Excel Imports and Exports Limited (losses exceeding£533,000 ) and Opera (losses exceeding£4.2 million ). A further tax loss letter was issued in relation to Specialist Metal Services Limited (losses exceeding£1.5 million ) on19 November 2009 . Additionally, as part of the ongoing verification process a visit to Vale’s Acton refinery was arranged and took place on9 December 2009 at which Vale provided HMRC with records that had been requested. 74. At a subsequent meeting, on17 February 2010 , Vale informed HMRC that it had reviewed its due diligence procedure for checking and registering new commercial customers/suppliers of refining material and that this was as provided to Officer Wilson on11 December 2009 . This was discussed at that visit as were tax loss notifications. On25 March 2010 HMRC wrote to Vale to clarify a number of issues that had been raised during the visit. 75. Mr Rhodes telephoned Officer Wilson on15 April 2010 to inform her that Vale had taken delivery of a consignment of eight “Japanese Bars” from GC. The note of the conversation taken by Officer Wilson records that the bars were: “… each of 500 grams with a value of around£130K – this had not been purchased yet. He [Mr Rhodes] advised that they are happy with their due diligence checks on their supplier but following HMRC’s visit in February have some concerns over trading in platinum bars. They have asked their supplier GC Metals Limited for confirmation that they have carried out due diligence on their supply chain and are happy with the response.” 76. Officer Wilson explained that she could not disclose information about GC to Mr Rhodes other than confirm that, like all other participants within a deal chain, it had been visited. She also told Mr Rhodes that the decision whether to trade was a commercial decision for Vale and not something on which HMRC could advise. However, Officer Wilson agreed to call Mr Rhodes back once she had seen the documents relating to the bars. 77. Mr Rhodes attached the documents to an email sent to Officer Wilson on15 April 2010 . These documents included photographs of the bars showing drill holes in them, a letter from GC to Mrs Kenwright dated14 April 2010 which explains that the bars had been drilled by GC “in order to assay them and ensure they are not plated” as an XRF scan can only scan the surface of the metal and could not detect if they were fakes. GC also explains that it sent the bars for refining as it has no outlet for platinum metal as a finished product. 78. Having considered the documents Officer Wilson, as promised, called Mr Rhodes. Her note of the telephone conversation records that she asked on what basis Vale currently held the consignment and was told by Mr Rhodes: “… that this was a problem for them [Vale] because GC had just turned up with the consignment, they had not notified them of any intention to deliver a consignment. I asked if Vale had agreed to buy the stock – Mr Rhodes said that they hadn’t. I asked about risk that the company (GC) were taking – how could they be so sure they could achieve a profit if the metal had been delivered on 12/04/10 and they had not agreed a ‘fix’ then potentially they could make a loss I explained that these were the sort of questions we [HMRC] would be asking if the transactions lead back to tax losses and if Vale were not able to provide a satisfactory response then they could be denied input tax in relation to such a transaction.” 79. On19 April 2010 HMRC (Officer Wilson) wrote to Vale requesting all records in relation to transactions with GC including delivery information, purchase invoices, self-billing documentation, analysis reports, transaction report, payment information and details of any forward supply for transactions within Vale’s 01/08 to 03/10 VAT periods. Vale provided a breakdown of third party metal purchases and VAT claimed on those transactions for the period for January 2008 to March 2009. 80. On16 July 2010 Vale requested a meeting with HMRC which was arranged for 24 and25 August 2010 . This was attended by HMRC Officers Wilson and Jennifer Jackson who met with Vale employees Robert Kent (VAT Controller), Mr Rhodes, Mr Sherwood, Richard Ellis (Production Manager), Frances Mckiernan (Commercial Team) and two representatives from Ernst & Young which had been instructed by Vale. 81. The note of the meeting refers to a discussion about Trade Events and how it was explained on behalf of Vale that these were not used for meeting new contacts. Due diligence was also discussed in respect of several companies including Opera, Star, GC and Capella. In relation to these companies the visit report states: “ Opera Trading Limited FM [Francis Mckiernan] advised that Opera Trading Limited had been trading with Vale since July 2006. PW [Officer Wilson] queried how contact had been established with this company. FM said she was unsure, it would probably have been by phone or email and they were a Central London company. … PW asked what the trading activity of Opera Trading Limited was. There was no immediate response. FM reviewed SR’s [Mr Rhodes] paperwork and then stated they could not provide a definitive response but assume it was precious metals. PW reviewed papers held which included Opera’s Memorandum of Association. PW then queried how a company who appeared to erect/construct roads could change to trading on precious metals. RK [Robert Kent] said that a Radio Advertising Agency started out trading in pans and DS [Mr Sherwood] said “didn’t Nokia originally trade in timber”
“PW [Officer Wilson] queried whether Vale had been able to demonstrate that the consignment of eight bars had been returned to the supplier. SR [Mr Rhodes] claimed that there probably wasn’t a handover ticket. PW advised that looking at the transaction as a whole evidence suggests that a payment for these bars had been made by Vale and that following this payment for the ‘quantity of platinum’ went down the chain. The same bar numbers as per the photograph provided to PW by ST feature on the invoices within the chain. AF [of Ernst & Young] asked for the date and PW responded 08/04/10 and stated we would need evidence to show that the Platinum was returned and any evidence would be considered. SR claims he knows that Platinum was returned because the very same Platinum, resurfaced with a different supplier, being Capella Manufacturing Limited.” 85. However, when cross-examined Mr Rhodes said that his reference to Capella was a “speculative comment” as “It wasn’t definitive we knew they were coming back with Capella although there had been an offer of bars from Capella which appeared to Mr Rhodes to meet the description of the Japanese bars. The note of the meeting continues: “AF asked for clarification in the link in the transactions. PW advised that it followed exactly the same pattern for an earlier transaction of bars with preceding serial numbers and that payment for roughly 128 Troy Ounces which is roughly 4000 grams (8 bars at 500 grams each as per picture provided) and the transaction checks show that payment from Vale, went down the chain ie the supplier then paid their supplier etc. SR claimed that there could have been two supplies of bars. PW referred to the bar numbers and the photos asking for confirmation that Vale took the photo and that this was the consignment returned. SR confirmed these points.” 86. On15 December 2011 HMRC wrote to Vale to provide an update on the verification of its VAT returns for periods 01/08 – 04/10. The letter explained that HMRC would “shortly be in a position to issue decision letters in respect of the input tax claimed” in these periods. It also warned Vale that if input tax was denied that it could also be liable to a penalty. Information on Vale’s rights under theHuman Rights Act 1998 and HMRC fact sheets on compliance checks “What happens when we find something wrong” and “penalties for errors in returns or documents” were enclosed with the letter. 87. As previously stated, the first decision letter was issued by HMRC on19 December 2011 denying Vale’s right to recovery of input tax in relation to transactions with Opera and Capella. The letter states that in making the decision HMRC have taken into account: “… the features of the trade evident from reviewing the transactions and activities of [Vale]: 1. The transactions have all been traced back to identified fraudulent tax losses in the appropriate VAT periods. 2. Starting in January 2008, and prior to the transactions under consideration taking place, [Vale] · was issued with a letter detailing MTIC fraud and suggesting ways to ensure the integrity of the supply chain; · was given a copy of Notice 726 – Joint and Several Liability; · received visits from HMRC at which MTIC was discussed. [Vale] can therefore be shown to have had a general awareness of VAT fraud prior to entering the transactions under consideration, including the need to take reasonable steps to establish the credibility and legitimacy of its customers, suppliers and suppliers. 3. The way these transactions were undertaken were in a different way to the bulk of [Vale’s] trade. For example: · they involve platinum bars/manufactured platinum or palladium anodes instead of general scrap; · the bars/manufactured anodes are purchased below market price. 4. [Vale] was advised to undertake due diligence prior to undertaking transactions. [Vale] undertook the following steps to establish the credibility and legitimacy of its suppliers and supplies: · Obtained Certificate of Incorporation and Memorandum of Association on one of the suppliers under consideration (ie Opera Trading Limited) · Obtained bank details · Obtained VAT registration number but no VAT registration certificate The above could not have provided it with adequate assurance that its transactions were not connected with fraudulent evasion of VAT. All the documents do is confirm that, at the time they were issued/received, the suppliers existed. [Vale] did nothing to confirm, via third party checks and reports, that its [sic] most of its suppliers were credible solvent businesses that would honour their trading commitments. It is apparent that for the transactions under consideration [Vale] have not taken action, following the advice provided by HMRC and did not take reasonable steps to establish the integrity of the supply chains.” 88. An extension of time to request a review was agreed and by letter dated17 February 2012 Ernst & Young, on behalf of Vale, requested a review of the decision to deny Vale its input tax. That letter explains that: “In broad terms my client [Vale] accepts that it was aware of the general risk of MTIC in its sector from January 2008. However, it is material to note that the majority of the transactions covered by the letter of 19 December took place in the very early months of 2008 and therefore at a time when my client’s knowledge, and that of the precious metals refining industry as a whole, of the risks of MTIC in their sector was limited.”
“For example · they involve platinum bars/manufactured platinum or palladium anodes instead of general scrap; · the bars/manufactured anodes are purchased below market price. Whilst it may be accepted that these transactions were not priced any different to that from other suppliers ie similar terns, the issue is that supplies were of good delivery status and what appear to be certified anodes that were sold to Vale under similar terms and that makes the transactions lack credibility. The transactions do not make commercial sense.” 90. A review of this decision was requested on25 May 2012 . HMRC wrote to Vale on27 April 2012 to confirm that the first decision had been upheld following a review. A letter confirming the second decision had also been upheld following a review was sent to Vale by HMRC on13 July 2012 . 91. In the meantime, on29 May 2012 , the third decision letter, a misdeclaration penalty notice had been issued to Vale by HMRC. Due diligence 92. Although there has already been some reference to due diligence in the notes of visits, meetings and correspondence with HMRC, in this section of the decision we set out, in general, the due diligence undertaken by Vale and its evolution during the period with which the appeal is concerned. The due diligence undertaken on each supplier is considered in greater detail below in the section dealing with the participants in the transactions. 93. The due diligence undertaken by Vale in 2008, which consisted of the completion, by a potential supplier, of a New Customer Profile Form, was described by Officer Wilson as “minimal and inadequate to provide any reassurance to be able to make a judgement on the integrity of supply chains” but regarded by Vale, as Mr Rhodes said, to be “appropriate due diligence to protect its commercial position” as prior to HMRC investigations (described above) Vale had no reason to be concerned that any of its transactions might have been connected with the fraudulent evasion of VAT. 94. The New Customer Profile Form recorded the an “Introduction Date” and an explanation of how a potential customer/suppler had heard about Vale. A correspondence and delivery address (if different) were also required in addition to the customer/supplier contact details, eg telephone number, fax, email address, together with the names of contacts in the sale, analysis and accounts departments of the prospective customer/supplier, its bank account details and details of the transaction such as whether Vale was to purchase metal from contract and whether self-billing was to be requested by the customer/supplier. 95. Credit checks were not undertaken before Vale became aware of MTIC fraud because, as was explained, it was always in possession of the palladium or platinum from the customer/supplier and therefore there was never any credit risk. 96. However, having been alerted to the potential for fraud, from November 2009, Vale introduced a revised “Procedure for Checking and Registering New Commercial Customers/Suppliers of Refining Material” that it had developed in conjunction with its advisers, Ernst & Young. This revised due diligence included the application of the following “seven step procedure”: “ Procedure 1. Once the Commercial Department receives a new enquiry for refining material from a supplier or for the purchase of finished goods from a customer the relevant terms are issued from the commercial office. 2. Upon acceptance of the relevant terms the information outlined below needs to be obtained and form CD002 (new customer profile) must be completed. 3. Form CD003 needs to be signed by either the Assistant Sales Manager or the Sales Manager and passed onto the Accounting Department along with all the information obtained about the customer as detailed below (in essential information required). 4. The Accounting Department will review all the information provided by the Commercial Department and will satisfy itself that all the relevant details have been obtained using form CD004 as a guide. If any details are not supplied the Accounting Department will return the details to Commercial requesting the relevant details are provided. 5. The Accounting Department may wish to carry out further checks on any customer as detailed below, and will not open any account until it is satisfied that the appropriate due diligence has been carried out. 6. Only when the Accounting Department is satisfied will the form be approved by the Section Leader of Metal Accounts or in his absence the Business Manager. The Metal Accounts Clerk is then able to allocate a new customer number and enter the relevant details on the CHORUS system. Until the account is approved on the system the only contact with the customer or supplier should be via the Commercial Department. 7. The final authority regarding whether to set up or reject a customer or supplier is with the Accounting/Finance Department. Specifically the Section Leader Metals Accounting or the Business Manager, and will be based on the relevant due diligence checks detailed below. However, if the due diligence appears to have been satisfied but there is doubt or reservation about any aspect of the company or information that cannot be proven, then the Business Manager may elect to forward the information to individuals of higher authority - external to the immediate Acton Business. Notably the Vale Europe Ltd Marketing Director who will discuss and take a view on the new customer/supplier and will indicate his acceptance or rejection of the customer which will be attached to the file.” 97. Under the subheading “Essential Information Required”, to which point 3 of the above procedure refers, the following is required from all customer/suppliers: (1) All supplier details as outlined in form CD002 section 1. (2) Bank account details and bank reference from relevant bank account as outline in CD002 section 3. (3) Details of the nature of the goods as outlined in form CD002 section 4 (applicable to refining customers only). (4) Elaboration to sections 5 on form CD002 of any of the answers supplied are negative. (5) Headed Letter/Letter of Introduction requesting an account to be opened. (6) Trade reference. (7) Proof of company address. 98. The due diligence to be carried out on customers under the procedure includes a “Dun and Bradsheet check” with an additional Dun and Bradsheet investigation if considered necessary and internet searches for the company, banks, trade references to verify details together with any follow up checks as considered necessary to be undertaken. 99. The forms mentioned are designed to provide specific information. Form CD002, a “New Customer Profile” provides space for the inclusion of the name, address of a company and of its directors together with contact details (section 1). A new customers VAT, company registration numbers (section 2) and bank details (section 3) are also to be recorded as are the type of goods (section 4). Form CD003 is the Commercial Department form and “sign off” following the completion of a check list. Form CD004 sets out a check list for a metal accounting review and signature form for the Section Leader Metal Accounting or Business Manager to complete to confirm that either a new account has been approved and opened or, if not approved the giving the reasons for it which are to be attached to the file. 100. In answer to a question from the Tribunal, Officer Wilson confirmed that, “there weren’t significant differences”, between Vale’s due diligence on the four suppliers in issue and other traders from which it had purchased metals and had not been denied recovery of input tax. She said that: “For some of them there were extra things like trade references, but not all of them … but other than that, there was wasn’t a significant amount of difference.”
“… It has not been suggested that EU law requires attribution of knowledge to a company for the purposes of VAT in a manner different from the attribution that domestic law provides. This is surely one of those areas where it is for the national court to ascertain how knowledge of an individual is to be attributed to a company.” 138. Mr Scorey also relies on the observations on the doctrine the “directing mind and will” of a company by Nourse LJ in El Ajou v Dollar Land Holdings plc [1994] 2 All ER at 695-6 that: “This doctrine, sometimes known as the alter ego doctrine, has been developed, with no divergence of approach, in both criminal and civil jurisdictions, the authorities in each being cited indifferently in the other. A company having no mind or will of its own, the need for it arises because the criminal law often requires mens rea as a constituent of the crime, and the civil law intention or knowledge as an ingredient of the cause of action or defence. In the oft-quoted words of Viscount Haldane LC in Lennards Carrying Co Ltd v Asiatic Petroleum Co Ltd[1915] AC 705 at 713, [1914–15] All ER Rep 280 at 283: ‘My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.’ The doctrine attributes to the company the mind and will of the natural person or persons who manage and control its actions. At that point, in the words of Millett J ([1993] 3 All ER 717 at 740): 'Their minds are its mind; their intention its intention; their knowledge its knowledge.' It is important to emphasise that management and control is not something to be considered generally or in the round. It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point. This was well put by Eveleigh J in delivering the judgment of the Criminal Division of this court in R v Andrews Weatherfoil Ltd[1972] 1 All ER 65 at 70,[1972] 1 WLR 118 at 124: ‘It is necessary to establish whether the natural person or persons in question have the status and authority which in law makes their acts in the matter under consideration the acts of the company so that the natural person is to be treated as the company itself.’” 139. However, in Citibank NA v HMRC[2014] UKFTT 1063 (TC) Judge Mosedale, with whom we respectfully agree, observed that: “84. [Counsel for HMRC] accepted in the hearing that to prove actual knowledge against Citibank would require them to prove actual knowledge against an individual whose knowledge could be vicariously attributed to the bank. Yet they do not (so far) seek to prove actual knowledge against any named individual. Would the individual whose (alleged) knowledge they seek to vicariously attribute to the bank have to be identified by them to make good the allegation of knowledge by the bank? Because if so, HMRC should not make that allegation against the appellant without identifying such an individual. 85. But I do not think identification would be required: otherwise a corporate entity could avoid allegations of actual knowledge by simply refusing to cooperate with HMRC’s enquiry or call any witnesses, making it impossible to identify which particular person had actual knowledge. If the circumstantial evidence was sufficient to justify it, I think a Tribunal could draw the inference that at least one person, albeit unidentified, acting on behalf of the bank had actual knowledge.”
“So I consider that HMRC can (if they have proper grounds in the evidence) make an allegation of knowledge against a corporate entity, such as the appellant, even if they are unable to identify any particular individual whose knowledge should be vicariously attributed to the bank.” 140. It is therefore not necessary for HMRC in making an allegation of knowledge or means of knowledge against Vale to attribute that knowledge to an identified individual or individuals. As Mr McGuiness recognised, because it remains necessary for HMRC to establish, on the balance of probabilities, that the connection to a fraudulent loss of VAT was either known or should have been known, there is protection for an appellant such as Vale even in the absence of an allegation against an identified natural person. Awareness of fraud 141. It is clear from the letter sent by Ernst & Young to HMRC on17 February 2012 , which Mr Rhodes confirmed accurately reflected Vale’s position, that Vale was aware of the “general risk” of MTIC fraud in its trade sector from January 2008 (see paragraphs 88, above). This is perhaps not surprising given HMRC’s letter of14 January 2008 which enclosed a copy of Notice 726 and warned Vale of the risk of MTIC fraud (see paragraph 54, above). 142. In our view although HMRC’s letter of14 January 2008 had referred to “high value, low volume electrical products” and Notice 726 to “the supply of specified goods” which were not the type of products in which Vale dealt, it is clear from the matters referred to in Notice 726 (see paragraph 61, above) that it was nevertheless still applicable to Vale. 143. It is also apparent from the evidence that Vale’s awareness of the extent and prevalence of the existence and nature of the fraud within its trade sector developed over time as a result of the visits by HMRC Officers to its Acton refinery and correspondence it has with HMRC, as set out above. This culminated in the visit of28 May 2009 when the Officers advised that tax losses had been identified within some of the traced deal chains involving Vale in 2008 with net losses of£100 million (see paragraph 69, above). However, by this time Vale had already completed all of its deals with Opera and most of its deals with Capella with which we are concerned. Knew or should have known 144. In essence, Mr McGuiness, for HMRC, contends that the due diligence undertaken by Vale on Opera, Capella, Star and GC was so inadequate that it hardly fits the description and was clearly not effective other than to protect Vale’s commercial interests with no consideration given to protecting the position of the public revenue. HMRC relies on what Mr McGuiness described as the failure by Vale “to carry out what are no more than common sense and prudent inquiries and checks.”