VATF43234 - Basic interventions: output tax interventions: refusing zero rating of dispatches and exports where there is connection with fraud: the Mecsek principle: the need to obtain evidence

  • Introduction
  • The response must be clear
  • The need for evidence and the type of evidence required

Introduction

It is essential that when making a SCAC request

  • the response from the relevant tax authority must be clear so that there can be no ambiguity regarding whether the transactions the UK supplier carried out were part of a tax fraud committed by the customer, and
  • the SCAC must also include evidence to support the claim that the customer was involved in a tax fraud. The type of evidence that might be required is discussed below.

The response must be clear

To ensure that the answers received are clear and unambiguous it is essential that when preparing the questions to be included on the SCAC they, too, are clear in what we require. For example:

  • Was your trader involved in a tax fraud?
  • Did your trader actually receive the goods / services from my trader?
  • If your trader did not receive the goods / services, please provide me with any information you have concerning what happened to the goods/services.
  • Did your trader declare the goods on its VAT return?
  • Has your trader accounted for and paid any net VAT due to you as the tax authority on the acquisition and supply of those goods or services?
  • Did your trader submit a recapitulative statement showing the goods received from my trader?
  • Please provide details of the onward sale of the goods by your trader - date of sale, who the goods were sold to, and whether VAT was properly accounted for.
  • Did you see evidence that your trader paid my trader for the goods? If not, did they make payment to another party for the goods? Please provide details of the payments made and to whom they were made.
  • Is your trader linked to other businesses involved in MTIC fraud?

The above list is not exhaustive.

By keeping the questions simple and asking as many as possible (and are necessary) we will be able to build a picture to show that, on the balance of probabilities, the transactions the UK supplier carried out were part of a tax fraud committed by the customer.

If the answers received are unclear clarification must be sought. What we cannot do is to make an assumption as to what the tax authority meant when answering. Doing so means that the Tribunal could place little weight on the content of the SCAC, which might preclude us from discharging our burden of proof (i.e. to show that the transactions the UK supplier carried out were part of a tax fraud committed by the customer), meaning that any assessment made on a ‘Mecsek’ basis would have to be withdrawn.

If the answers received are not in English it is essential that HMRC's translation service is used to render the responses into English. It is also essential that the full content of the SCAC be translated.

It is also important to bear in mind that statements of opinion from an overseas revenue official will not be given any weight by a UK court or Tribunal, unless they are supported by a detailed account of the facts that led the official to form that opinion. In other words, a Tribunal will apply the same approach as it does to the evidence of HMRC officers, i.e. it will only be interested in evidence of facts, not opinions.

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The need for evidence and the type of evidence required

As well as receiving clear answers to the questions set out in the SCAC we may also need to provide evidence to the Tribunal that backs up what has been stated. Thus it is important that, at the end of the questions being asked, we request that any documents held that corroborate what has been written be sent by the answering tax authority. What types of documents are provided is down to the tax authority and will depend on what is held. If nothing is held then we should ensure that the answering tax authority informs us. If nothing is sent this might cause problems when trying to prove that the UK trader's customer was involved in a tax fraud. Again, the Tribunal could place less weight on the SCAC, it would leave the SCAC open to argument or, in some cases, the SCAC could be deemed as inadmissible.

When requesting evidence you should request only what you consider to be necessary for us to discharge our burden before the Tribunal. The type of evidence that we would request would include:

  • the VAT registration form
  • any variation documentation (e.g. change of PPOB)
  • VAT return and ledger details (e.g. prints from the VAT Legacy Data Store or equivalent, especially anything that shows that an assessment has gone unpaid)
  • any documents relating to the setting up, running and dissolution of the company (e.g. Certificate of Incorporation, shareholder details, memorandum, directors disqualification, winding up orders)
  • PNC records or equivalent on any company officials or shareholders who have been found to be dishonest
  • VAT visit reports
  • copies of due diligence and deal logs
  • basic paperwork (e.g. invoices, purchase orders, bank statements or any banking information showing the movement of the money, CMRs, freight documentation, release notes)
  • paperwork regarding loans or how the business was funded
  • communications between the trader and the tax authority (e.g. VETO letters, assessments, warning letters, Notice to Produce letters or equivalent, contact with a Contact Centre or equivalent)
  • annual accounts
  • any information that shows the company was not trading in the goods that it said it was
  • information about letters being sent to the registered address that are returned to sender
  • any information which tends to show that the company could not and/or did not trade at the registered address where it said it traded from.

The above list is not exhaustive.

Please see VATF43239 if you require further advice.