[2010] UKFTT 163 (TC)

	TC00468

Appeal number LON/2009/0093

VALUE ADDED TAX – Acquisition VAT – whether VAT chargeable on an acquisition of goods by the Appellant where the goods had not been removed to the UK but a UK VAT registration number had been used in the acquisition – held it was – whether the Appellant was entitled to credit for input tax in relation to the VAT charged on the acquisition – held it was not because it had not proved that the acquisition had been for the purposes of an onward taxable supply – Appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	MEXCOM LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Value Added Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						ALEX McLOUGHLIN						
Sitting in public in London on 4 December 2009 

Clive Morton, CM Admin Services Ltd., for the Appellant 

David Manknell, Counsel, instructed by the Solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The Appellant, Mexcom Limited, appeals against an assessment to VAT in the sum of £50,638, plus interest, raised by the Respondents, HMRC, on 7 September 2006, and a related misdeclaration penalty of £7,595.
2.	The assessment relates to acquisition tax alleged by HMRC to be due in relation to a supply of toilet paper in bulk by an Italian company ORAN Spa to the Appellant. 
3.	The first issue in the appeal is whether the Appellant was correctly assessed to VAT on this acquisition of goods.
4.	The Notice of Appeal (dated 9 December 2008) refers to this issue only.  However a second issue arose in the course of correspondence between the parties, and was addressed at the hearing.  
5.	The second issue was whether, if the Appellant was correctly assessed to VAT on the acquisition, was it entitled to credit for input tax in relation to the tax so assessed. Mr. Manknell, for HMRC, raised no objection to the Tribunal’s proposal that it should direct an amendment to the Notice of Appeal to cover the second issue also.  The Tribunal therefore so directs and both issues will be determined by this Decision.
6.	The Appellant’s case on the second issue, which HMRC resists, is that it is entitled to input tax credit because the goods were acquired by it for the purposes of taxable supplies to be made in the course or furtherance of its business, specifically, an onward supply of the goods to Amerix Investments Limited (“Amerix”).
7.	Howard John Higgins, a Higher Officer of HMRC gave evidence at the hearing.  He confirmed the contents of a Witness Statement which he had made, dated 2 September 2009, and there was no cross-examination.
8.	A bundle of documents including correspondence, was also before the Tribunal.
9.	On the basis of the evidence, we find the following facts:
10.	By a series of 43 invoices issued on dates between 3 December 2004 and 9 December 2004, ORAN Spa (“ORAN”) (an Italian company with a seat in Pistoia, Italy) supplied bags containing rolls of toilet paper to the Appellant, with its given address in London E3 2DA, and with its given (UK) VAT number “GB 834080445”. No VAT was charged on the invoices (because the Appellant’s UK VAT number was used). The accompanying CMR documentation stated that the recipient of the goods was the Appellant at its given address in London, but that the goods were in fact received by Mar de Luna SL at Calle San Antoni 10, 0837 Calella, Barcelona, Spain. The CMR documentation stated that the transporter of the goods was Rock Freight Forwarders Limited of Gibraltar and that the transporter had “observed” that the destination of the goods was “Spain”.
11.	The Appellant submitted no EC sales lists relative to the above transactions.
12.	There is no dispute about the figures.  The invoice prices in euros (€ 412,371) have been translated into sterling at a rate of exchange of € 1.4251 to £ 1, giving a total sterling acquisition price of £ 289,362.85, on which VAT of £50,638 has been charged.
13.	The Appellant is one of a number of companies owned by a Frenchman, a M. Luc Sommeyre (who did not give evidence).  M. Sommeyre lives in Thailand.  There is a small staff located in Monte Carlo and Singapore.  The Appellant’s business is the buying and selling of goods, usually across international boundaries.  The margins earned on deals by the Appellant are small.  The Appellant usually moves the goods traded direct from its supplier’s premises to its customer’s premises.
14.	Mr. Morton said that the Appellant has an Italian VAT registration as well as a UK VAT registration and that he understood that EC sales lists were filed in Italy.  We accept that the Appellant has an Italian VAT registration (IT 00106159999) because that is stated on the invoice referred to in paragraph 16 below, but we find that he has not proved that a relevant EC sales list was filed in Italy. 
15.	 Mr. Morton also asserted that the Appellant supplied the goods, which it had purchased from ORAN, to Amerix, a British Virgin Islands company.  
16.	Our file contained a copy of an invoice issued by the Appellant to Amerix dated 2 December 2004, apparently referring to a sale of the goods for a total price of € 414,020.48, with provision for delivery in Spain.  No VAT was charged on the sale.   
17.	There is also on our file an undated letter to Mr. Morton from United Transport Freight Forwarders Limited of Wood Green, London, stating that they had carried out “several transports” “during 2004” for Mexcom Limited from ORAN in several locations in Italy to Mar de Luna SL at an address in Barcelona, Spain.  However we do not find this letter of probative value having regard to its failure to refer precisely to the transactions in issue, and also because the CMR documentation refers to Rock Freight Forwarders Limited of Gibraltar, rather than United Transport Freight Forwarders Limited.
18.	HMRC made enquiries of the Spanish VAT authorities.  Those enquiries elicited the following response (which we accept as accurate).  The registered domicile of Mar de Luna Invest SL was C/ Roger de Llúria, n° 119, Barcelona (not the address given on the CMR documentation referred to above).  That address is a lawyer’s office dealing with the creation and transfer of companies.  Mar de Luna Invest SL has submitted VAT returns declaring no revenue for the years 2003, 2004, 2005 and 2006.  It was compulsorily deregistered from 26 September 2007. The address given on the CMR documentation, Calle Sant Antoni n° 10, Calella was visited by the Spanish revenue Inspection Services and a pub was found at the address.  The tax agents were informed that the pub was opened one year before their visit and that before that there was an agency at the address managed by one Eduard Roger.  No connection was found between Mar de Luna SL and that address.
19.	HMRC (Officer Higgins) concluded that there was no evidence of acquisition tax relating to the transactions in issue being declared to the Spanish authorities.  HMRC (Officer Southern, the Intervention Team Manager) asked Mr. Morton on behalf of the Appellant to provide commercial evidence to support the sales invoice issued by the Appellant to Amerix, in order “to be sure of [the Appellant’s] entitlement to input tax [which could] offset the acquisition tax liability” (Officer Southern’s letter dated 12 June 2008). 
20.	In response, under cover of a letter dated 30 June 2008, Mr. Morton supplied a copy of an instruction, dated 30 November 2004, issued by the Appellant to Rock Freight Forwarders Limited of Gibraltar relating to the transaction.  The instruction was to pick up the goods from ORAN in Ponte Buggianese, Italy and to transport them to Mar de Luna SL at the Calle San Antoni n° 10 address in Callela, Barcelona, Spain. 
21.	Mr. Morton also at the same time supplied correspondence between the Appellant and Amerix, being a general statement of interest made by Amerix to the Appellant, an information as to availability, made by the Appellant to Amerix and a purchase order placed by Amerix with the Appellant requiring the goods to be shipped to Mar de Luna SL at the Calle San Antoni n° 10 address.  Amerix’s general statement of interest was dated 11 November 2008, the Appellant’s information as to availability was dated 20 November 2006 and Amerix’s purchase order was dated 21 November 2008.  Clearly the references to 2008 were a mistake as all the documents bore a transmission date of 30 June 2008.  Mr. Manknell, for HMRC, noting that the transactions in fact took place in December 2004, submitted that the inconsistencies in dating cast doubt on the authenticity and reliability of this copy documentation.
22.	For this reason HMRC in the hearing before us did not accept that the sale by the Appellant to Amerix had in fact taken place or that the Appellant had arranged for the goods to be transported from ORAN’s premises in Italy for delivery to Amerix at Mar de Luna SL’s premises in Barcelona.
23.	Mr. Morton asserted that Amerix on-sold the goods to a customer, Comexco, with an address in Kingsway, Holborn, London WC2B 6AW, with delivery to Italy.  He supplied HMRC (Officer Southern), under cover of a letter dated 7 June 2009, with a copy invoice to that effect dated 29 December 2004, showing a price of € 424,384.54 with VAT of € 84,876.91 added, which was in our bundle. Again, HMRC do not accept that this onward sale by Amerix has been satisfactorily proved.
24.	HMRC’s submission is that the Appellant made an acquisition of the goods (from ORAN) which is chargeable to VAT in the UK.  HMRC accepts that it has the burden of showing that the Appellant is liable to acquisition VAT as claimed.
25.	HMRC further submits that in relation to any entitlement of the Appellant to input tax credit in respect of the acquisition VAT, the burden is on the Appellant to show that the goods were acquired for the purposes of taxable supplies to be made in the course or furtherance of its business.  In the case of Rompelman and Rompelman-Van Deelen v Minister van Financien (C-268/83) [1985] ECR 655, the European Court held that it was a taxpayer’s obligation to establish his entitlement to deduct input tax and that in this connection the national revenue authorities could require a taxable person to support his declared intention by objective evidence.
26.	HMRC’s submission is that the Appellant has failed to discharge the burden on it and that in consequence the Appellant has no entitlement to input tax credit.
27.	The Appellant, through Mr. Morton, criticises HMRC’s case as “cherry-picking” in that they assert that the supply by ORAN to the Appellant gives rise to an acquisition VAT liability, but that they do not accept that the Appellant made an onward supply to Amerix which could give rise to an equal and opposite credit for VAT input tax.  He says that HMRC is not looking at the whole transaction which the Appellant entered into.  Overall, he says that no VAT has been lost, because Comexco was charged VAT on its invoice from Amerix.  
28.	However, Mr. Morton accepted that he had no documentary evidence that Amerix had accounted for VAT on its sale to Comexco.  He asserted that on the balance of probabilities Amerix should be taken to have accounted for the VAT because it was still in existence and would have been struck off “sooner or later” if it had failed to account for the VAT.  Mr. Morton did not produce evidence that Amerix was still in existence.
29.	Mr. Morton also accepted that there was some doubt over the documentation.  He said he thought that some documentation – the Tribunal assumes he meant the documentation on the sale by the Appellant to Amerix – had been fabricated because the original documentation could not be found “due to the lapse of time”.  
30.	The position is that Officer Southern required commercial evidence of the onward supply by the Appellant by his letter to Mr. Morton dated 12 June 2008.  In response (his letter dated 30 June 2008) Mr. Morton produced the documentation which he accepted had been fabricated.  The fabrication can only have been motivated by the need to respond to HMRC’s request for commercial evidence of the onward supply.  
31.	In these circumstances we find that that the Appellant has not proved to the satisfaction of the Tribunal that the sale of the goods by the Appellant to Amerix took place, or that the onwards sale by Amerix to Comexco took place.
32.	The relevant law can be summarised as follows:
33.	Section 10, VAT Act 1994 (“VATA”) relevantly provides as follows: 
“(1) VAT shall be charged on any acquisition from another member State of any goods where-
(a)	the acquisition is a taxable acquisition and takes places in the United Kingdom;
(b)	the acquisition is otherwise than in pursuance of a taxable supply; and
(c)	the person who makes the acquisition is a taxable person or the goods are subject to a duty of excise or consist in a new means of transport.
(2) An acquisition of goods from another member State is a taxable acquisition if-
(a) it falls within subsection (3) below or the goods consist in a new means of transport; and 
(b) it is not an exempt acquisition.
(3) An acquisition of goods from another member State falls within this subsection if-
(a) the goods are acquired in the course or furtherance of-
(i) any business carried on by any person; or
(ii) …
(b) it is the person who carries on that business … who acquires the goods; and
(c) the supplier-
(i) is taxable in another member State at the time of the transaction in pursuance of which the goods are acquired; and
(ii) in participating in that transaction, acts in the course or furtherance of a business carried on by him.
34.	Section 11, VATA states the meaning of acquisition of goods from another member State.  It is common ground that the acquisition of the goods in this case pursuant to the supply by ORAN to the Appellant is an acquisition within section 11, VATA.
35.	 Section 12, VATA deals with the time of acquisition.  It is not material to this case.
36.	Section 13, VATA deals with the place of acquisition.  It relevantly provides as follows:
(1)	This section shall apply … for determining for the purposes of this Act whether goods acquired from another member State are acquired in the United Kingdom.
(2)	…
(3)	… the goods shall be treated as acquired in the United Kingdom if they are acquired by a person who, for the purposes of their acquisition, makes use of a number assigned to him for the purposes of VAT in the United Kingdom.
37.	Subject to the possibility of section 14 VATA applying (see below), the acquisition of the goods by the Appellant from ORAN in this case, was an acquisition on which VAT is chargeable under section 10 VATA because, in particular, it was a taxable acquisition within section 10(2) and for relevant purposes it took place in the United Kingdom because the Appellant made use of its UK VAT number in the transaction, thus enabling ORAN not to charge Italian VAT on the supply – see: section 13(3) VATA.
38.	We turn to consider section 14 VATA.  That section makes provision for disregarding certain acquisitions from persons belonging in other member States (“triangulation”).  The Appellant relies on section 14(6) to negative the proposition that it has made an acquisition of the goods on which VAT is chargeable.  Section 14(6) is relevantly in the following terms:
“(6) …where-
(a)	any goods are acquired from another member State in a case which corresponds, in relation to another member State, to the case specified in relation to the United Kingdom in subsection (1) above; and
(b)	the person who acquires the goods is registered under this Act and would be the intermediate supplier in relation to that corresponding case,
the supply to him of those goods and the supply by him of those goods to the person who would be the customer in that corresponding case shall both be disregarded for the purposes of this Act …”
39.	Section 14(1), to which reference is made in section 14(6) set out above, provides for the disregarding of a supply whereby goods are removed from another member State to the United Kingdom and the recipient of the supply (the intermediate supplier) belongs in another member State (not the United Kingdom). The supply and the removal of the goods to the United Kingdom must be for the purpose of the intermediate supplier making a supply of them to another person (the customer) who is registered under the VATA.
40.	The application of section 14(6) to this case, for which the Appellant argues, would disregard the supply of the goods by ORAN to the Appellant on the basis that the goods were removed from Italy to Spain and the Appellant was an intermediate supplier.  However, to be successful in this submission, the Appellant would have to show that the supply by ORAN to the Appellant and the removal of the goods to Spain were for the purposes of the making of a supply by the Appellant to Amerix and that Amerix was registered under the VATA.
41.	Since the Appellant has failed to prove that the supply by it to Amerix took place, the Tribunal is not satisfied that the supply of the goods by ORAN to the Appellant and their removal to Spain was for the purposes of such a supply.  Further, the Appellant has not shown that Amerix was registered under the VATA. It seems unlikely that Amerix was registered under the VATA since its headed paper, used for the purported purchase order to which reference is made above makes no mention of a VAT registration number. 
42.	The Tribunal was referred to certain regulations in the VAT Regulations 1995, which impose further conditions on the application of section 14 VATA. It appears that these conditions were not complied with, but Mr. Manknell, while making the point, informed the Tribunal that it was not advanced as a point of first importance, because non-compliance with the applicable regulations was not regarded by HMRC as “necessarily fatal” to the application of the triangulation provisions. Reference was also made to Notice 725 “The single market” and to further conditions laid down in paragraph 13.7 of the Notice which must be complied with before a UK taxable person can use the simplified triangulation procedure outlined in the Notice.  Again, it appears that the Appellant did not comply with these further conditions.
43.	The Tribunal therefore concludes that there was an acquisition by the Appellant of the goods which is chargeable to VAT by virtue of section 10 VATA and that the assessment must be upheld.
44.	The Appellant has no entitlement to credit for input tax in relation to the VAT charged on the acquisition because it has failed to provide objective proof that the goods were used or to be used for the purposes of the Appellant making onward taxable supplies in the course or furtherance of its business – see: the conclusion at paragraph 31 above.
45.	The appeal must therefore be dismissed. 
46.	We understand the point that Mr. Morton makes about the supply by ORAN to the Appellant being recognised for the purpose of imposing a VAT charge, but any onward supply by the Appellant to Amerix, or by Amerix to Comexco not being recognised for the purpose of relieving the Appellant of the VAT charge.  However the Appellant should understand that for the prevention of abuse of the VAT system certain obligations of proof are put upon taxable persons as a condition of their being able to benefit from VAT relieving provisions, and it is the responsibility of a taxable person to provide objective proof to meet those obligations. In this case the Appellant has failed in that responsibility.  
47.	We have seen no proof that Amerix accounted for the VAT allegedly charged by it on its supply of the goods to Comexco.  If, even at this late stage, the Appellant was able to satisfy HMRC that Amerix had done so, and therefore that there had in fact been no loss of VAT overall for which the VAT on the Appellant’s acquisition of the goods from ORAN is (as things stand) needed to make good, then the Appellant would at least be able to show HMRC that there had in fact been no tax loss.  In these circumstances it may be that HMRC would be prepared to look at the matter again. 

                             JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 13 April 2010