Judge concludes there is no evidence to suggest trader’s director knew he was party to the fraud
Mobile phone trader CCA Distribution Limited has won its appeal against HMRC over withheld VAT repayments totalling almost £10 million.
The Stockport-based firm, which ceased trading in 2006, was accused by HMRC of knowing it was part of a ‘contra-trade’ fraud relating to handsets traded in the UK and Europe between April and June 2006.
In 2007, HMRC denied CCA the right to deduct tax of £6.3 million for transactions during April and May and a further £3.5 million for deals made in June. At the time HMRC officer Allyn Cunningham said CCA’s transactions and the conduct of its director, Ashley Trees (pictured), “demonstrate that you knew or should have known” about the fraud.
Lack of evidence
However, last month, CCA won its appeal after Judge Malachy Cornwell-Kelly of the Tax Tribunal concluded there was no evidence to suggest Trees knew he was party to the fraud.
The judgment said the absence of hard evidence meant HMRC’s case against CCA was based on “inference” from its trading activity and “circumstantial evidence”.
The tribunal also found Trees had kept a database of actual and potential trading partners which detailed CCA’s due diligence in ensuring its trading partners were not committing fraud, but that Cunningham had not seen it when he made the decision to deny the repayments.
It noted Trees had appointed accounting firm KPMG in March 2004 and Deloitte in July 2006 to assist HMRC in conducting checks on CCA’s trading and reporting them to HMRC.
Judge Cornwell-Kelly said Trees came across as a pragmatic businessman who was focused on buying and selling rather than speculating about whether he was part of a tax fraud.
He said: “It is inherently improbable that, in all the circumstances of close, constant and well-established monitoring by HMRC and of checks being made on CCA’s trade connections by KPMG and Deloitte at CCA’s request, Mr Trees was at the same time consciously collaborating in an organised fraud.
“There is no evidence of bad character or duplicity on the part of Mr Trees to make it probable that he was knowingly playing a double game for high stakes.”
Accountancy firm Smith & Williamson’s customs investigation and litigation partner Martin O’Neill, who represented Trees, said a particular highlight of the case was discrediting financial evidence obtained from an offshore bank, used by HMRC in many mobile phone appeals, including CCA’s, to establish transactions took place as part of a wider fraudulent scheme.
O’Neill said: “The CCA case is a significant appeal victory. The appeal took many hours to prepare so it could be effectively argued at the Tax Tribunal. Fighting an appeal of this type is a long and involved process.
“The overriding principle in preparing for a case of this type is to plan for all eventualities and not to cut corners. Cases involving alleged knowledge of ‘missing trader intra-community’ fraud are winnable provided the appellant has conducted his business well and is prepared to spend the necessary time preparing its appeal.”