Mobilx Ltd & Ors v HM Revenue & Customs [2010] EWCA Civ 517 (12 May 2010)

Mobilx Ltd & Ors v HM Revenue & Customs [2010] EWCA Civ 517 (12 May 2010)

The right to deduct input VAT may be denied where it is established, 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. Mere knowledge of a risk or that it was more likely than not that the transaction was connected with fraud is insufficient; it must be shown that the trader knew or should have known that the transaction was in fact so connected. The Kittel principle is directly applicable in UK law and does not require further domestic legislation.

Citation
[2010] EWCA Civ 517
Parties
First Appellant: Mobilx Ltd (in Administration); First Respondent: The Commissioners for Her Majesty's Revenue & Customs; Second Appellant: Blue Sphere Global Ltd; Third Appellant: Calltel Telecom Ltd & Anr; Second Respondent: The Commissioners for Her Majesty's Revenue & Customs; Third Respondent: The Commissioners for Her Majesty's Revenue & Customs
Jurisdiction
England and Wales
Judgment Date
12 May 2010
Procedural Posture
Appeal / Court of Appeal (civil Division) on Appeal From High Court (chancery Division)
Outcome
Appeals by Calltel and Opto dismissed; HMRC's appeal against Blue Sphere Global dismissed; Mobilx appeal dismissed.
Legal Topics
Value Added Tax (vat), Missing Trader Intra Community (mtic) Fraud, Input Tax Deduction, Fraudulent Evasion of VAT, Legal Certainty, Fiscal Neutrality
Tax Law European Union Law Value Added Tax (vat) Missing Trader Intra Community (mtic) Fraud Input Tax Deduction Fraudulent Evasion of VAT Legal Certainty Fiscal Neutrality

Case Brief

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Parties

Mobilx Ltd (in Administration)

First Appellant

The Commissioners for Her Majesty's Revenue & Customs

First Respondent

Blue Sphere Global Ltd

Second Appellant

Calltel Telecom Ltd & Anr

Third Appellant

The Commissioners for Her Majesty's Revenue & Customs

Second Respondent

The Commissioners for Her Majesty's Revenue & Customs

Third Respondent

Procedural Posture

Appeal / Court of Appeal (civil Division) on Appeal From High Court (chancery Division)

Legal Issues

  1. 1 Whether HMRC can refuse input tax deduction where the trader knew or should have known that transactions were connected with VAT fraud
  2. 2 Interpretation of 'should have known' in the context of VAT fraud under EU law
  3. 3 Whether knowledge of a risk or likelihood of fraud is sufficient to deny deduction

Ratio Decidendi

The right to deduct input VAT may be denied where it is established, 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. Mere knowledge of a risk or that it was more likely than not that the transaction was connected with fraud is insufficient; it must be shown that the trader knew or should have known that the transaction was in fact so connected. The Kittel principle is directly applicable in UK law and does not require further domestic legislation.

Court Disposition

Appeals by Calltel and Opto dismissed; HMRC's appeal against Blue Sphere Global dismissed; Mobilx appeal dismissed.

Orders

  • Denial of input tax deduction upheld where actual or constructive knowledge of fraud established.
  • Where only knowledge of a risk or likelihood of fraud is established, deduction cannot be denied.