Tribunal orders HMRC to repay ET £13m VAT


Defunct handset distributor European Telecom wins VAT and Duties Tribunal case against HMRC over £8.8 million in witheld VAT repayments; HMRC ordered to repay VAT plus costs and interest

HM Revenue and Customs (HMRC) has been given 56 days by the VAT and Duties Tribunal to repay around £13 million in VAT and costs to former handset distributor European Telecom, or else appeal its decision.

European Telecom, led by John Drinkwater, went into administration in May 2007, owing around £8 million to creditors but owed £8.8 million in withheld VAT repayments from HMRC for suspected involvement in a VAT carousel fraud.

The disallowed VAT was on 33 purchases totalling £50.2 million from Unique Distribution, another defunct UK distributor, which was at the time official UK supplier for Nokia.

The Tribunal judgement this month noted European Telecom was an established trader with more than 100 staff selling to the UK and overseas markets. It also noted European Telecom did not use the First Curucao International Bank, which has been central to HMRC’s investigation as a conduit for fraudulent VAT funds.

It said: “Customs has not satisfied the Tribunal the only reasonable explanation for Global’s purchases from Unique were that they were connected with fraud. Nor viewing the evidence has Customs satisfied us that it knew transactions were connected with fraud. The appeal is allowed with costs.”

CTM Litigation director Liban Ahmed commented: “The most important aspect was that the Tribunal rejected the expert evidence of KPMG and found it completely irrelevant and factually misleading.

“We will not get too carried away, but it is a clear signal that HMRC will not have it all its own way and, contrary to what many believe, the Tribunals are not biased against all traders.”

One trader source remarked: “This is an uncomfortable precedent for HMRC should future tribunal chairmen follow the rationale of Judge Theodore Wallace.”

Former managing director John Drinkwater (pictured) conducted a management buyout of European Telecom in 2002 after it went into receivership.

Israeli group Emblaze Telecom held a 51 per cent stake in European Telecom when it went into administration in 2007. Drinkwater was the sole witness for European Telecom, which was advised by the Khan Partnership.

HMRC said in a statement: “HMRC are considering this decision carefully, before deciding whether to appeal”.


  1. HMRC represent everything that is wrong in the UK today. Although the win is good news and a slam dunk, HMRC cannot even lose with grace. Their sense of entitlement to other people's money is appalling. No doubt they know they will lose their appeal, but they are making a mockery of the law by deliberately appealing in order to delay repaying the European Telecom what is rightfully theirs within 56 days. It will take about a year now before they have to repay the funds. HMRC are shameless and disgusting law-breakers who are eroding away democracy.

    Their so-called public purse is merely funding gold plated pensions, extravagent expenses and quangos who are all cross-protective of each other. The public sector cover-up culture is a disgraceful act of despotic public sector nepotism. And they have the audacity to use this Kittel farce test to preach their white elephant nonsense and the law itself is an ass for entertaining it.

    They have taken away legal certainty and got clean away with it.

  2. Good news for all traders caught up in this debacle. Finally HMRC cannot just rely on stating that there is fraud in the chain. They will appeal and we will see where that goes!