Fonecomp Ltd v HM Revenue and Customs [2015] EWCA Civ 39 (03 February 2015)

Fonecomp Ltd v HM Revenue and Customs [2015] EWCA Civ 39 (03 February 2015)

The Kittel principle is not limited to cases where the VAT fraud occurs in the same linear chain of supply as the transaction for which input tax deduction is claimed. It extends to contra-trading scenarios where the trader's transactions are objectively connected to fraudulent evasion of VAT, and the trader knew or should have known of that connection. The right to deduct input tax may be denied even if the fraud occurs in a different but linked chain, provided the requisite connection and knowledge are established.

Citation
[2015] EWCA Civ 39
Parties
Appellant: Fonecomp Limited; Respondents: The Commissioners for Her Majesty's Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
03 February 2015
Procedural Posture
Appeal / Court of Appeal (civil Division) on Appeal From the Upper Tribunal (tax and Chancery Chamber)
Outcome
Appeal dismissed
Legal Topics
VAT Fraud, Input Tax Deduction, Contra Trading, Abuse of Rights, Knowledge Requirement for VAT Fraud, Supply Chain Fraud
Tax Law European Union Law VAT Fraud Input Tax Deduction Contra Trading Abuse of Rights Knowledge Requirement for VAT Fraud Supply Chain Fraud

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Parties

Fonecomp Limited

Appellant

The Commissioners for Her Majesty's Revenue and Customs

Respondents

Procedural Posture

Appeal / Court of Appeal (civil Division) on Appeal From the Upper Tribunal (tax and Chancery Chamber)

Legal Issues

  1. 1 Whether the Kittel principle is limited to fraud in the same chain of supply or extends to contra-trading scenarios
  2. 2 What constitutes a sufficient connection between a transaction and VAT fraud for denial of input tax deduction
  3. 3 What degree of knowledge is required for a trader to be denied input tax deduction under the Kittel principle

Ratio Decidendi

The Kittel principle is not limited to cases where the VAT fraud occurs in the same linear chain of supply as the transaction for which input tax deduction is claimed. It extends to contra-trading scenarios where the trader's transactions are objectively connected to fraudulent evasion of VAT, and the trader knew or should have known of that connection. The right to deduct input tax may be denied even if the fraud occurs in a different but linked chain, provided the requisite connection and knowledge are established.

Court Disposition

Appeal dismissed

Orders

  • The appeal by Fonecomp Limited is dismissed.