Fonecomp Ltd v HM Revenue and Customs

Fonecomp Ltd v HM Revenue and Customs

The Kittel principle is not limited to cases where the VAT fraud occurs in the same chain of supply as the transaction for which input tax deduction is claimed. It applies where the trader knew or should have known that their transaction was connected with fraudulent evasion of VAT, including in contra-trading scenarios. The trader does not need to know the specific details or mechanics of the fraud, only that their transaction was connected with such fraud. The findings of the tribunals below that Fonecomp should have known of the connection and participated in a transaction connected with VAT fraud were upheld.

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
Civil Appeal / Appeal From Upper Tribunal (tax and Chancery Chamber)
Outcome
Appeal dismissed
Legal Topics
Value Added Tax (vat), Input Tax Deduction, VAT Fraud, Contra Trading, Abuse of Rights, Knowledge Requirement in Tax Fraud
Tax Law European Union Law Value Added Tax (vat) Input Tax Deduction VAT Fraud Contra Trading Abuse of Rights Knowledge Requirement in Tax Fraud

Case Brief

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Parties

Fonecomp Limited

Appellant

The Commissioners for Her Majesty’s Revenue and Customs

Respondents

Procedural Posture

Civil Appeal / Appeal From Upper Tribunal (tax and Chancery Chamber)

Legal Issues

  1. 1 Whether the Kittel principle is limited to fraud in the same chain of supply for VAT input deduction denial
  2. 2 Whether knowledge of the specific mechanics of fraud is required to deny input VAT deduction
  3. 3 What constitutes a sufficient connection between the transaction and VAT fraud

Ratio Decidendi

The Kittel principle is not limited to cases where the VAT fraud occurs in the same chain of supply as the transaction for which input tax deduction is claimed. It applies where the trader knew or should have known that their transaction was connected with fraudulent evasion of VAT, including in contra-trading scenarios. The trader does not need to know the specific details or mechanics of the fraud, only that their transaction was connected with such fraud. The findings of the tribunals below that Fonecomp should have known of the connection and participated in a transaction connected with VAT fraud were upheld.

Court Disposition

Appeal dismissed

Orders

  • The appeal is dismissed.