Global Tax Fraud – Innocent Metals Company Wins £8.8 Million VAT Appeal

Complex tax frauds frequently span the globe and involve numerous participants, thus making it difficult to distinguish the guilty from the innocent. In a case on point, a global metals refining company was saved from a multi-million-pound loss after its lawyers succeeded in convincing the First-tier Tribunal (FTT) that it fell into the latter category.

The company had been denied the right to deduct over £8.8 million in input tax from its VAT bills in respect of purchases of precious metals, platinum and palladium, over a period of more than two years. HM Revenue and Customs alleged that various transactions with four of the company’s suppliers were connected with fraudulent VAT evasion. The company also received a £329,294 misdeclaration penalty.

It was not disputed that the purchases from the suppliers were real transactions; that the metals concerned physically existed; that they were supplied to the company for refining at market prices and that the company had paid for them in full. However, HMRC took the view that various participants in the supply chain were fraudulent VAT defaulters and that the company should have been aware that the transactions were not connected with a genuine commercial market.

However, in challenging the decisions before the FTT, lawyers for the company denied that it should have had greater awareness of the prevalence of tax fraud in its sector or that the exercise of due diligence would have revealed that the transactions were suspicious. The purity of the metals and the price paid for them were said to be consistent with ordinary market conditions.

In upholding the company’s appeal, the FTT found that HMRC had failed to establish that the company either knew or should have known that the transactions were connected to fraud. The penalty was overturned and the FTT ruled that the input tax claimed by the company was fully deductible.