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”.