HM Revenue and Customs v Citibank NA & Anor [2017] EWCA Civ 1416 (29 September 2017)

HM Revenue and Customs v Citibank NA & Anor [2017] EWCA Civ 1416 (29 September 2017)

Where HMRC allege that a taxpayer actually knew their transactions were part of an orchestrated scheme to defraud HMRC (first limb of Kittel), such an allegation will often amount to an allegation of dishonesty and must be clearly pleaded and particularised. The necessity to plead dishonesty depends on the substance of the allegations, not merely the legal label. The Court of Appeal upheld the Upper Tribunal's approach that, in these cases, HMRC's pleadings amounted to an allegation of dishonesty and required proper particularisation and disclosure.

Citation
[2017] EWCA Civ 1416
Parties
Claimant/respondent: The Commissioners for Her Majesty's Revenue and Customs; Defendant/appellant: Citibank NA; Defendant/appellant: E Buyer UK Limited
Jurisdiction
England and Wales
Judgment Date
29 September 2017
Procedural Posture
Appeal (tax/vat) / Court of Appeal Judgment on Appeal From Upper Tribunal (tax and Chancery Chamber)
Outcome
Appeal dismissed; Upper Tribunal's orders upheld.
Legal Topics
VAT Fraud, Input Tax Deduction, Kittel Principle, Pleading Requirements, Dishonesty in Civil Proceedings, Disclosure Obligations
Tax Law Civil Procedure European Union Law VAT Fraud Input Tax Deduction Kittel Principle Pleading Requirements Dishonesty in Civil Proceedings +1 more

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Parties

The Commissioners for Her Majesty's Revenue and Customs

Claimant/respondent

Citibank NA

Defendant/appellant

E Buyer UK Limited

Defendant/appellant

Procedural Posture

Appeal (tax/vat) / Court of Appeal Judgment on Appeal From Upper Tribunal (tax and Chancery Chamber)

Legal Issues

  1. 1 Does an allegation that a taxpayer 'knew' its transactions were connected with VAT fraud under the first limb of the Kittel test require HMRC to plead and particularise dishonesty?
  2. 2 Are HMRC's pleadings sufficient or must they expressly allege dishonesty when relying on actual knowledge under Kittel?
  3. 3 What is the proper approach to disclosure and particulars in MTIC VAT fraud appeals?

Ratio Decidendi

Where HMRC allege that a taxpayer actually knew their transactions were part of an orchestrated scheme to defraud HMRC (first limb of Kittel), such an allegation will often amount to an allegation of dishonesty and must be clearly pleaded and particularised. The necessity to plead dishonesty depends on the substance of the allegations, not merely the legal label. The Court of Appeal upheld the Upper Tribunal's approach that, in these cases, HMRC's pleadings amounted to an allegation of dishonesty and required proper particularisation and disclosure.

Court Disposition

Appeal dismissed; Upper Tribunal's orders upheld.

Orders

  • HMRC required to clarify and, if necessary, amend pleadings to state whether dishonesty is alleged.
  • HMRC required to provide proper particulars of the knowledge allegation where it amounts to dishonesty.