[2010] UKFTT 167 (TC)

TC00472

VAT- ZERO –RATING –one hundred and twenty eight supplies of goods to Spain and Poland - Customers in Spain and Poland missing traders - no persuasive evidence that the goods reached Spain or Poland - commercial documentation unsatisfactory – appellant failed to make appropriate enquiries by way of due diligence – appellant knew,  or ought to have known that the transactions  were fraudulent – appeal dismissed

FIRST-TIER TRIBUNAL                                                                      MAN/2008/0912
TAX

			    INTEGRAL RESOURCES (UK) LIMITED	Appellant			                                                                         Appellant

-	and –

THE COMMISSIONERS FOR HER MAJESTY’S 
				       REVENUE AND CUSTOMS	                      Respondent

Tribunal:      DAVID S PORTER (Judge)
		   ELSIE GILLILAND (Judge)
		   MARION CROMPTON Member)
										
Sitting in public in Manchester on 25, 26, 27, 28 and 29 January 2010
John Thompson, the Managing Director, appeared for the Appellant

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2010
DECISION

1. The Appellant, Integral Resource (United Kingdom) Limited (Integral), appeals against the the Commissioners for Her Majesty’s Revenue and Customs (HMRC) decision to deny zero-rating on the alleged removal of Red Bull energy drinks to EU customers in 2006. The decisions are contained in letters dated 19 March 2008 and an assessment dated 4 April 2008. The periods in which the supplies occurred are 04/06 to 10/06 inclusive but, owing to the three months allowed to obtain evidence of zero-rating, the periods are adjusted for the assessments to 07/06 to 01/07 inclusive. Mr Thompson, on behalf of Integral, says that he took all reasonable care to ensure that Integral was not involved in any fraudulent trading, and that Integral could rely on it’s enquiries, documentation and CMRs, as evidence thereof, within the terms of Regina (Teleos PLC and others) v Customs and Excise Commissioners (ECJ) 2008 QB 600.  HMRC say that Mr Thompson, on behalf of Integral, must have known, or ought to have known that the Red Bull was not reaching the designated destination. We have found that Mr Thompson, on behalf of Integral, knew or ought to have known that the Red Bull was not leaving the country as he believed and that his due diligence, documentation and CMRs were not reliable. 
2.  James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, acted for HMRC and called Mr Gary Howard Kennedy, formerly of the Missing Trader Intra Community (MTIC) Team at Chaucer’s Walk, Furthergate Industrial Estate, Blackburn, Lancashire, BB1 3AF as a witness. Mr Puzey produced seven bundles for the tribunal. Mr Thompson, the Managing Director, appeared for Integral.
3. We were referred to the following cases.
Regina (Teleos PLC and others) v Customs and Excise Commissioners (ECJ) 2008 QB 600
Brendan MacMahon t/a Irish Cottage Trading Company v The Commissioners for her Majesty’s Revenue and Customs MAN/2007/0744
Appleyard Vehicle Contractors Limited v The Commissioners for her Majesty’s Revenue and Customs MAN/06/0576
The Preliminary Issue
4.	Mr Thompson explained that he had instructed solicitors to act on a ‘no win no fee’ basis. Unfortunately those solicitors had merged with another practice, who did not agree to such an arrangement, and his solicitors had had to have withdraw.  Mr Thompson also confirmed to the tribunal that it was very unlikely that he would be able to find any other firm of solicitors to act for him and, even if he did, he would  be able to pay for their services. We decided to proceed with the case and Judge Porter prepared an ‘aide memoire’ to assist Mr Thompson in preparing his evidence in chief. Mr Puzey consented to the ‘aide memoire’ subject to the words ‘every reasonable care’ being substituted for the words ‘reasonable care’. A copy of the aide is annexed to this decision.
The Facts
4.	We intend to deal with the evidence and undisputed facts by following the period of trading under dispute. Some of the facts are agreed, whereas others were contentious. Where there is dispute, we set out the evidence in detail. Where the evidence is, we say so. Mr Puzey initially outlined the case. Then, Mr Thompson,under oath,  gave evidence on the third day, as to the background to Integral and its dealings with Enkay Marketing SL (Enkay) of A6-Agrupadas 7, Calle 15B, Njeva, Andalucia Malaga, 29660, Spain and to Betimex (Betimex) of UL.Klonowa 13,05-816 Opacz K, Warszawy Poland, which we propose to deal with first. Mr Thompson told us that he trained as a chef finally working as the Principal Chef at the Alderly Edge Hotel in Cheshire, where he met Mr McCormack, who owned the Hotel. Unfortunately after 5 years Mr McCormack became bankrupt and Mr Thompson was made redundant. Mr Thompson then converted his home into a restaurant and ran it successfully with his wife until they separated. The following year Mr McCormack returned to the area and asked Mr Thompson to assist him to run his satellite disc business. Mr Thompson was involved with the sales and export side of that business. As a result, he attended exhibitions and, at one of those, he met his partner (and equal share holder in Integral) Werner Franciscus Thomas, resident in the Netherlands. HMRC have only ever dealt with Mr Thompson. The first company in which he was interested, Eureka Trading was a Dutch company, that sold satellite receivers, which were sourced from Taiwan and China and sold throughout the United Kingdom. The turnover was about £2,000,000. Eureka Trading was approached by a customer from abroad from whom the company purchased 300 sophisticated satellite receivers called ‘Sonyset’. Eureka Trading appears not to have made proper enquiries as to the ‘Sonyset’ receiver, as they appear not to have been informed that Sony had patented the system. As a result proceedings were commenced against Eureka Trading by Sony. Eureka Trading could not afford to defend the action and it went into liquidation. Mr Thompson then formed Hollstar Limited and registered it for VAT on 1 August 2004. Hollstar Limited concerned itself with the distribution of a Polish TV listing magazine and as a result of a repayment claim Mr Downer, from the VAT office, visited them in July 2004. The company was given public notices 703 and 725 as well as the statement of practice with regard to invalid invoices. Mr Thompson advised HMRC that he was looking to expand the business in to the sale of adult clothing, soft drinks and mobile phones. The visit note in July 2004 confirmed that he would make appropriate enquiries of customers VAT entitlement at Redhill and that he would be wary of third party payments. Unfortunately Hollstar Limited had to close when the Polish family, who were helping to run it, turned out to be disinterested in the business and more concerned to give their children an English education. Interestingly, Mr Thompson confirmed that he had made many visits to Poland, although he did not speak the language. We have set out the background to Mr Thompson’s earlier trading activities as it shows that he had experience of the vicissitudes of running a medium sized business and that he must have been alerted to the need to take care when dealing with overseas traders.
5.	Hollstar Limited ceased to trade on 30 August 2004, two days before Integral was formed and registered for VAT with effect from 1 September 2004. The VAT1 application gives the intended business activity as ‘resourcing/selling products, wholesale/retail’. Integral traded from Mr Thompson’s home, 9 Eden Avenue, Lytham St Annes. We are satisfied that Integral continued Hollstar Limited’s business. It continued to sell satellite, but as the market had become more populated the size of the market reduced. As a result, Integral had ordered Red Bull from Sian Trading Limited for delivery to Betimex in Poland. Betimex had agreed that it would pay Integral the net value of the goods in advance. As the trade with Betimex increased, Integral wrote to the VAT office in September 2005 to ask if it might make monthly returns. Mr Thompson had confirmed that Integral had an overdraft facility with its bank of £25,000 which would be sufficient to cover any subsequent VAT liability. In a letter of 26 September 2005  approving the monthly returns HMRC advised:
“Before any repayment of VAT is made Customs must be satisfied that the goods have been physically removed from the United Kingdom. As discussed you should endeavour to obtain and retain the relevant proof.  This includes:
•	Proof of payment from your customer
•	Original stamped CMR documents
•	A ferry /channel tunnel ticket
•	Written confirmation from your customer that he had received the goods.
                   As the exporter you and no-one else are responsible for physically   removing the goods from the United Kingdom. This is especially important if the goods are sold ‘ex works’ and it is your customer who organises the transport. If Customs are not satisfied that the goods are removed from the United Kingdom then the repayment of VAT may not be made…”
6.  Mr Thompson acknowledged that he had received the letter and confirmed to Mr Downer that he would endeavour to ensure that the points he had made were adhered to and that he would obtain the necessary documentary proof. Mr Downer sent a further email on 28 September 2005 which stated:
	“Thanks for your email. Enquiries continue into the overall transaction chain. At this time, just so long as you;
a)	Verify all potential suppliers and customers with Redhill and hold documentary evidence supporting the fact
b)	Do not make or pass third party payment instructions
c)	Hold satisfactory evidence that the goods have been physically removed from the United Kingdom then you should be OK.
However, if it is found that there is a tax loss in the transactions you will be returned to quarterly returns.”
Mr Thompson was also aware that HMRC were undertaking a risk based programme of verifying repayment claims made by traders in sectors affected or potentially affected by MTIC fraud as Mr Kennedy had written to the company on 19 October 2006 to that effect.
For the purposes of this appeal the exports of Red Bull were principally to Enkay in Spain and to Betimex in Poland. The appeal is concerned with transactions from 04/06 to 10/06 inclusive assessed in 07/06 to 01/07 inclusive.
The exports to Enkay
7. Mr Thompson told the tribunal that he was approached by Mark Johnson, who he had met at an exhibition, who had enquired whether Integral would be interested in exporting Red Bull. Mr Johnston told Mr Thompson that Liquide Limited, of 18 Atholl Crescent, Edinburgh, EH3 8HQ (Liquide), a company registered in Scotland, that were the main Red Bull wholesalers for Scotland had been supplying Glenarvon Limited (Glenarvon), who in turn had been exporting the Red Bull to Enkay in Spain.  Glenarvon could not continue trading in Red Bull because it was supplying razor blades and other items to Enkay and could not finance all the transactions. In the documentation provided to the tribunal, Mr Thompson indicated that he had been introduced to Liquide by a Mr Ferguson. At the end of the hearing, when asked by Judge Porter how much profit he had made from the transactions, he told the Tribunal that 50% of his profit/commission was paid to Mr Ferguson. We have decided that the business must have been introduced by Mr Ferguson as he was to receive 50% of the profit/commission. A meeting was arranged with representatives from Liquide at the TeBay Motorway Service Station on the M6. Liquide’s representatives explained that the Austrian manufacturers of Red Bull were concerned that there were foreign imports of their product into the United Kingdom, which they wished to counter, as the imports were affecting their United Kingdom sales. As a result they wanted Liquide to export Red Bull to Europe, on the condition that it was not resold into the United Kingdom. We were surprised that Glenarvon appeared to be unable to finance the transactions, when Integral had no difficulty in doing so. We were equally surprised that the Austrian manufacturers could not sell direct to Enkay. We consider that Mr Thompson must have been put on notice at this point and that he should have been diligent and made further enquiries. Two weeks after the initial meeting Mr Thompson went to Liquide’s offices in Edinburgh and met with Andy Ferguson. Mr Thompson told the tribunal that Liquide appeared to be a substantial organisation. There were at least a dozen staff in the building. At that meting it was agreed that Integral would sell to Enkay and that Integral would try to find other purchasers from its own customer base. Mr Ferguson explained at the meeting that the sales had to be out of the United Kingdom as the Austrian manufacturers were able to trace their goods and would know if any of the sales to Integral found their way back into the United Kingdom.  Mr Ferguson also explained that his company could only sell Red Bull in Scotland. As a result it would be necessary for Integral to set up a Scottish company to place the orders with Liquide. Mr Thompson confirmed to the tribunal that his accountants had formed Integral (Northern) Limited (Northern). Mr Thompson also told us that he knew Alan Brown, who owned Enkay, through a mutual acquaintance, when Mr Brown had been a Disc Jockey in Manchester.  He told HMRC that Alan Brown had been recommended to Integral by Glenarvon.
8. Integral’s subsequent repayment claim made in May 2006 amounted to £84,989.37 and by 01/06 had risen to £100,000 or more each month. HMRC had not, at that time, made any in-depth enquiries into Integral’s business and had made the repayments. Mr Thompson explained to the tribunal that as a result of the substantial increase in business he could no longer fund the potential VAT liability. He explained how the transactions to Enkay were conducted. Mr Brown would ring Mr Thompson from Enkay in Spain requesting a particular delivery of Red Bull. Mr Brown, on behalf of Enkay, agreed to pay for the Red Bull in advance by direct debit into Integral’s account at the Natwest Bank. Integral ostensibly asked Northern if they could supply the Red Bull, it in turn approached Liquide. We say ostensibly, as all the transactions for Integral, Northern and the finances were handled from Mr Thompson’s home at 9 Eden Avenue. We were not shown any invoices from Liquide and we assumed that they ought to be with the documents for Northern. There were none with the bundles. We were shown the subsequent invoices from Northern to Integral, which generally identified 3456 Cases of Red Bull at a price of £12.25 per case totalling £42,336 plus VAT of £7,408.80.  The subsequent invoice to Enkay showed the same number of cases but a case price of £12.60 and no VAT and an increased total amount of £43,545.60. The difference of 35p in the case price amounting to £1,209.60, represented Northern/Integrals Profit. Liguide had agreed that Northern need only pay for the goods, the £43,545.60 it had received from Enkay, and that Northern did not need to pay any VAT until it received its repayments from HMRC. When Integral received the VAT repayment it paid Liquide £6,199.20, being the VAT of £7,408.80 less Integral’s commission/profit of £1,209.60. We were told at the end of the hearing that Mr Ferguson the Managing Director of Liquide received 50% share of that commission/profit. It also appears that there were as many as two or three transactions on the same day. We were told by Mr Thompson that he had received over £100,000 as profit over the period, 50% of which he shared with Mr Ferguson. Given that Integral’s profit depended on the repayment of the VAT it was essential that Mr Thompson managed the paper work correctly. The first payment from Enkay came from its bank, but it subsequently advised Mr Thompson that payments would come from Foodline Delivery Service (Foodline). That business was based in Rusholme Manchester and it is surprising that Mr Thompson did not make further enquires as part of his due diligence.  Mr Thompson was told that Enkay had made this arrangement because they obtained a better exchange rate for its payments. He had been advised by Mr Downer, in September 2005, to be wary of third party payments. Mr Thompson did not choose to make any further enquiries as to the validity of Foodline.
9.	Enkay had insisted that they would arrange for the transportation of the Red Bull. Again Mr Downer had advised Mr Thompson, in his note in September 2005, that if the deliveries were ‘ex works’ then Integral would be have to produce satisfactory evidence that the Red Bull had left the United Kingdom. Once the payment for the Red Bull had been made, Enkay sent a collection note to Integral. The collection notes were not always from the same haulie,r but appear otherwise to be similar. The goods were to be picked up either at Cert Logistics Ltd, Bruce Way, Cambridgeway, Whetstone, Leicestershire, LE 8 6HP (cert Logistics) or  Storage U K Seabeggs Road, Bonny Bridge, Stirlingshire, FK4 2BN ( Storage) through the transport agency Monarch Transport. The Collection note then identified a different haulage company. R Swain Transport Limited was one such. The collection note identified the vehicle registration number, the quantity of goods to be collected and the location for the delivery, in almost every circumstance, P & O Liverpool, referring to a booking reference. Mr Thompson advised Liquide of the delivery details on a collection delivery note. That note was sent (ostensibly by Northern) to Liquide and returned to Northern by the Driver of the appropriate haulage company, to show that the goods had been collected for delivery to Liverpool for export purpose. The note only showed that a driver had collected the goods at Cert Logisitcs Limited, not where he had delivered them to, nor whether they had left the country. Integral relied on the CMRs to show that the goods had arrived at Malaga in Spain.
10.	 It would be helpful, at this point, to understand how the exporting to Enkay and Betimex was evidenced by the CMRs. The contents and requirements for using the CMRs is contained in the “Convention on the Contract for the International Carriage of Goods by Road” dated 19 May 1956. Mr Kennedy produced to the tribunal a CMR and Mr Puzey explained how CMRs work. The CMRs are contained in a pack consisting of a front sheet and 3 attached carbonated copies. (Article 5 requires 3 original copies signed by the parties. In practice there appear to be four.) The CMR is completed by the sender wishing to claim the VAT repayment in this appeal Integral. As a result a CMR should be completed as folows:-
•	Integral would enter its name in Box 1 as the sender.
•	Enkay’s/Betimex’ name should appear n Box 2 as the recipients.
•	 Box 3 indicates where the goods are being delivered to. In Enkay’s case Malaga, Spain and in Betimex  case to Warsaw, Poland. 
•	Box 4 identifies where the goods are to be collected from and the date. For Enkay this was normally Cert Logistics and occasionally Storage and for Betimex , Cert Logistics or Woodlands International Transport  Ltd, Unit 3, Pear Tree Lane, Dudley, West Midlands (Woodlands).
•	Box 5 referred to any documents attached and was not used  for the Red Bull
•	Boxes 6 ,7, 8 and 9 described the goods
•	Box 10 contains the statistical number and was not used
•	Box 11 identified the total weight of the cases
•	Box 12 the volume if a liquid
•	Box 13 contained the sender’s instructions of which there were none in this case.
•	Box 14 and 15 contains instruction for the payment for the carriage and cash on delivery. Again this was not used in this case as Enkay and Betimex arranged the transport
•	Boxes 19 and 20 have space for special; instructions and any financial deductions. Again these were not used in this case.
•	Box 21 refers to’ established in and the date’. It is unclear who completes this but in any event it was not completed on any of the CMRs produced to the tribunal.
•	Box 22 is signed and stamped by the sender. This should be by Integral in all cases
•	Box 23 is signed by the carriers. Principally Cert Logistics;Storage;Woodlands
•	Box  24 is signed by the recipient; in this case Enkay in Malaga or Betimex in Poland. 
The process is straight forward. Integral should complete a CMR, retaining the top copy for itself and send the three remaining copies to the warehouse at Cert Logistics, Storage or Woodlands. Cert Logistic, Storage or Woodlands would retain the next one, having signed and stamped it, and give the remaining two to the driver. When the goods are delivered in Malaga (or Warsaw in the case of Betimex), Enkay or Betimex signs one of the copies, retains it, and sends the last one it back to Integral.  Integral would then have its original CMR and the CMR returned by Enkay or Betimex, on which would appear its own stamp and signature, the stamp and signature of the haulier and the stamp and signature from Enkay or Betimex. The documentation collated by Integral, to comply with Notice 725, should therefore consist of :-

•	The invoice for the cases of Red Bull from Northern
•	The invoice for the same goods sold to Enkay.
•	The collection note from Enkay
•	The drivers note confirming that he had collected the Red Bull
•	The original CMR;  coupled 
•	with the copy CMR returned from Enkay
There would be a delay in receiving the CMRs signed by Enkay or Betimex as they would only be returned when the goods were received.
11. Mr Kennedy annexed to his witness statement a bundle of documents, for the invoices numbered 105 to 232 uplifted from Integral’s premises as evidence of the movement of the goods.. Mr Kennedy confirmed that the documents have been produced in the bundle in the order that they appeared in the original books.  Mr Thompson confirmed that was the case and that they represented the documents on which he relied for the repayments. Taking a random selection, none of them appear to contain a complete set of the required documents as set out above. Many of them do not contain a CMR and where they do, they are incomplete, the wrong details appearing in some of the boxes. In none of the bundles are there two CMRs, which would have facilitated marrying up the deliveries. The CMRs for Betimex are originals, but were obtained by Mr Thompson during the course of the investigations. The copies, which do appear within the documentation for Betimex, are almost illegible and indistinct as they are hand written and unnumbered. Mr Thompson has not taken any great care in compiling the documentation and admitted under cross-examination, that he was too busy making money and organising the administration, to complete the records properly. 
12.  We do not propose to go through all the invoices but to select a sample:-
Transaction 105
•	Invoice 10 April 2006 to Enkay  3456 case price £12.45  value £43,027.20GBP
Agency Monarch Transport Ltd Haulier Road Ferry Transport
Collect from Woodland.
•	Collection note  as above and  delivery address Liverpool
•	CMR bears no relationship to the above Box 3 point of collection Bonnybridge. Box 4 Delivery to Fleetwood; Box 5 destination Malaga .Spain P & O Ferry Masters. The carrier should have been Road Ferry Transport. Box 24 signed Enkay dated 17 April 2006
•	Box 22 should be signed by Integral but unclear. Box 23 signed by P & O Ferrymasters. Box 24 signed by Enkay and dated 17 April 2006
With the documents is a letter from Integral addressed to Woodlands, on the same day, asking that the goods should go to Dublin and asking Woodlands to complete the CMR. The letter appears to be in response to a fax from Mr Brown asking Integral to request the release of the goods so long as the trailer is 8127 with Road Ferry Logos.  Under cross-examination Mr Thompson confirmed that he knew that the Red Bull was to go to Dublin and that it had turned up in a store in Northern Ireland. Apparently an employee from Liquide had telephoned Mr Thompson to say that Red Bull in Austria, that had traced the goods through its computer system to Northern Ireland, were very concerned that a consignment had arrived in Northern Ireland and that it was not to happen again. Mr Thompson said that he had spoken to Mr Brown about the delivery. Mr Thompson agreed that the incident should have put him on notice and that he would have to be careful. It is significant that this transaction was the first of the transactions and the subject of this appeal. 
Transaction 132.  
•	Invoice from Northern to Integral Undated; 3456 case price £12.25 (the price to Liquide) value £49,744.80
•	Collect from Storage
Invoice Integral to Enkay
•	5 June 2006  to Enkay  3456 Case   price £12.55 value £43,372.80 GBP
•	Agency Monarch Transport Haulier C & N Transport Ltd
•	Collect from Storage
Collection note Enkay
•	Monday 5 June 2006 @ 08.30 /08.45HRS
•	Monarch Transport: C & N Transport Ltd 
No collection note signed by driver
CMR returned by Enkay There is no original copy which should have been retained  by Integral
•	Box 1 and 2 correctly completed
•	Box 3 states Hamburg Germany. It appears that the goods may have gone to Hamburg where they appear to have been picked up by Hansa Cargo Transport GMbh, International Transporters, Peutestra, 42-44, 20839, Hamburg. This should have been Malaga.
•	Box 4 should have been P & O Liverpool but states Dover 
•	Boxes 6,7,8 and 9 appear to be correct
•	The only other completed Boxes are 22 and 24. 22 is signed by Hansa as the carrier although all the other documents identify C & N Transport Ltd as the carrier.
•	Box 24 has Enkay’s stamp and a signature in Malaga.
       The documents are incorrect on the face of them and Mr Thompson should have made further enquiry.  
       Transaction 137
•	The documentation is identical to 132 save that the carrier was Skea Transport. Again the delivery address is Liverpool, the haulier in Hamburg is Hansa who collected the goods, presumably from Dover, which appears as the pick-up point on the CMR. Again there was only one CMR with the documents
Transaction 160
•	No original CMR
•	Invoice from Northern same price £12.25.
•	Invoice 20 July 2006 Enkay price £12.55 as before and 3456 cases
•	Agency Monarch Transport haulier Northern Freight Logistics
•	Storage collection point
•	Collection note same hauliers Delivery to P & O Liverpool
•	CMR as before not signed by Haulier
       Transaction 171
•	No original CMR
•	Invoice Northern price as before £12.25
•	Invoice dated 4 August 2006 to Enkay same price £12.55
Agency Monarch Haulier C & N Transport
Collect from Storage.
•	Collection note as before Haulier C & N Transport  Delivery address P & O Liverpool
•	CMR as before Hansa and Dover not signed by carrier. CMR as before save that Box 5 referred to a pro-forma invoice attached.
The bundles of the transactions are all incomplete and many of the CMRs are completed in the name of the Haulier rather than Integral. The majority of the CMRs show Dover as the point of exit. The contract notes mainly refer to P & O at Liverpool. Mr Thompson said that he had originally kept ferry tickets but Mr Brown indicated that he was consolidating all his haulage through Mammoet Ferry Transport United Kingdom. The local hauliers, that were identified as the hauliers in the contract notes, delivered the Red Bull to Mammoet, that in turn transferred the loads on to international trailers, it would appear, at the request of parties other than Integral
The exports to Betimex
13.   Integral had been selling Red Bull to Betimex from September 2005. Mr Thompson had had dealings with Betimex from a couple of years previously, but the transactions had been with a different product. Betimex, had also agreed to pay Integral in advance. Integral had been purchasing the Red Bull from Sian Trading Ltd but subsequently purchased the Red Bull from Liguide, since it said that it was  anxious to sell into Poland. Repayments had been allowed by HMRC in full up to June 2006. The transactions with Betimex followed the same pattern as those with Enkay save that the orders were placed through an employee called Maurisz, who had been  employed by Betimex, although the company was owned by Wlodzimierz Henryk Janusz.
Betimex transactions 
Transaction 236
•	No invoice from Northern to Integral
•	Invoice to Betimex price £12.50. 3636 cases. value £45,450 GBP
•	Collection Woodland 
•	Driver’s copy of collection delivery note Haulier Polish Transport Company unsigned
•	Copy CMR in name of Woodland not Integral. Very poor copy boxes 1,2,3 and 4 completed but indistinct. Original 4th copy produced to the tribunal having been obtained by Mr Thompson as a result of the investigation. Mr Thompson had obtained the majority of the copies of the CMRs for Integals’ dealings with Betimex . In all cases the transport is Mo Do Transport of ul.Jasna8, 89-333 Oslek n/Not.k/Pily Polska. That address is clear from the copies which appear in Integrals files. The reference to ‘Polish Transport Company’ should have read Mo Do Transport and to that extent is imprecise. The documentation is incomplete.
Transaction 246
•	Invoice from Westone Wholesale Ltd 20 October 2006 Price £12.25 value £45,864.
•	Invoice Betimex price £12.50 value £46,800 Polish Transport Company –Pietrzycki Collect from Westone
•	Collection delivery note signed by driver from Westone 
•	No CMRs or copies provided.
We consider that Mr Thompson would have no way of knowing where the goods were directed or whether they arrived at the designated destination.
The documentations for the rest of the transactions are much the same and are incomplete.
14.  The letter of 26 June 2005 from HMRC, to which Mr Thompson said he would comply, also required appropriate enquires to be made to verify all potential suppliers and customers with Redhill and hold documentary evidence supporting the fact. Further more that Integral should not make or pass third party payment instructions. In November 2005 Mr Thompson emailed Terry Mendes at Redhill to check the VAT number for Enkay. Mr Thompson advised that the company had paid Integral for some stock, but he did not want to complete the transaction until Enkay’s VAT status had been verified. Mr Mendes replied
“The information provided by you concerning the company below (Enkay) differs from that held by Revenue and Customs and at this time I am not able to confirm that this is a valid registration”
Mr Thompson was asked to provide a VAT certificate on which the company’s address appeared. He did, but never received an answer from Redhill. Never the less he proceeded with the transactions anyway. He did so on the strength of information he obtained from Enkay itself and a Europa print-out dated 9 October 2005.Europa being the European equivalent to Redhill. The VAT number B92612696 is the same as that on the purported certificate. The VAT number turned out to be valid. The fact that he had not heard from Redhill would not in itself mean that Integral had not taken every reasonable care as it had had confirmation of the VAT number from Europe. The documentation from Enkay is in Spanish and was not translated. Mr Thompson said, at the tribunal, that he had sent the details to HMRC un-translated and that he thought that they would have had them translated. The document marked VAT Certificate is far from clear.  It does have a VAT number on it, which appears to be the same as the one on the un-translated documentation, but it does not look like a certificate of any kind. We believe it was not. There is also a bank certificate, but without a translation it is impossible to know what the document says. The Company Registration certificate has a company number 0421489801 on it, which is the same as the number on the correspondence from Enkay. The Memorandum and Articles of association have been translated.  Article 2 sets out the objects of the company, which, amongst others, allows the import, export, marketing and distribution of [all] kinds of confectionary products, alcohol and non-alcoholic drinks. 
It is surprising that Mr Thompson was content to have the Memorandum and Articles in translation but not the other, more important, documents. Given the volume of trade he had in mind, it was his responsibility to have the documents translated and to satisfy himself that they were in order. It may be that had he done that the documents may have been in order, but the fact of that matter is that he did not do so and he therefore he did not know one way or the other.
15.  A similar report was provided with regard to Betimex. The VAT number for Betimex turned out to be invalid. All the documentation was in Polish and again Mr Thompson said that he had sent the documents to HMRC un-translated and that he expected them to undertake the translation. There is no good reason why he should have thought that HMRC should be responsible for the translation of the documents. He obviously believed that the documents were genuine and relied on them as part of his due diligence. Again, they may be what they purport to be, but with out a translation it is impossible to know. Mr Thompson said that he did not speak polish, but he confirmed in cross-examination that he had been to Poland on many occasions. In those circumstances we would have thought it would not have been too difficult for him to obtain a translation. We have decided that his enquiries into Enkay and Betimex were not robust enough and he should not have relied on unsubstantiated information alone to continue trading.
No enquires were made of Liquide, Foodline or Alan Brown.  Mr Brown told Mr Thompson that Foodline would transfer the money to pay for the goods. Mr Thompson was put on notice that this was a third party payment instruction about which he had been warned by Mr Downer. Mr Thompson said that he had not been concerned as he had heard of Amex and Thomas Cook payment arrangements. It did not affect his payments in advance and in fact accelerated them for all parties. The delay in clearing the funds earlier had been a constraint on the business. Again, he was put on enquiry to ask why Enkay which originally paid Integral directly, now chose to pay him through a third party. There is no further evidence of third party checks or references, copy accounts or trading history.
16.	Mr Kennedy gave evidence under oath and produced a bundle of all the transactions, the subject to the assessment, and his schedules showing where the goods may have gone. In an exchange of information under Article 5 & 19 of Regulation 2003/1/1798/EC, Mr Kennedy was advised that Enkay had a sole proprietor Alan Brown, and that the company and Mr Brown were currently missing and all efforts to locate them had been unsuccessful. Enkay had been deregistered on 16 October 2006. He confirmed that as a result of his subsequent enquiries in October 2007 in relation to Betimex in Poland, through the Applicant Authority Central Coordination Team in London, he discovered that Betimex had not traded for four months before his enquiry and could not be traced. On 19 March 2008 he notified Integral that the zero rating of its supplies to E C Customers in the periods 03/06, 05/06, 06/06, 07/06, 08/06, 09/06 and 10/06 had been denied on the basis that the evidence to support the application for zero rating did not comply with the requirements laid down by Public Notice 725 section 3 and section 18 (which are set out later in this judgment). Further more the movement of the goods did not correspond with the documentation provided. He raised an assessment based on 7/47th  of the value of the respective supplies as under:
               		Period 		Customer		Assessment
			04/06		Enkay			£474,681.60
					Drinks Direct Polka	£ 43,837.20
			05/06		Enkay			£650,592.00		
			06.06		Enkay			£650,592.00
			07/06		Enkay			£824,774.40
					Betimex		£  43,200.00
			08/06		Enkay			£746,906.40
					Betimex		£174,150.00
			09/06		Enkay			£741,636.00
					Betimex		£184,950.00
					Ljifering Dranken	£  44,550.00
			10/06		Enkay 			£653,184.00
					Betimex		£326,437.20
					Multibirra		£  46,946.76

The appropriate VAT periods for denial of zero rating in periods 04/06, 05/06, 06/06, 07/06 and 08/06 are the periods 07/06, 08/06, 09/06, 10.06, and 11/06 respectively. The appropriate VAT periods for denial of zero rating for the periods 09/06 and 10/06 are the periods 12/06 and 01/07 respectively. An assessment of £284,695.00 plus interest was raised for this period, calculated on 4 April 2007.  
17.	HMRC had visited Integral on several occasions towards the end of 2005 and it had allowed repayment claims. The initial sales had been of Red Bull to Drinks Direct Polska in Poland, supplied by Sian Trading Limited. Mr Thompson had made appropriate enquiries at Redhill and his documentation had in many cases included ferry tickets. HMRC had not considered the trading to be part of an MTIC fraud. A visit followed on 14 March 2006 when the repayment claims had reached approximately £150,000. Kathy Smith, the visiting officer, was satisfied with regard to the evidence showing removal of the goods, but had been told earlier by Mr Thompson that he expect the trade in Red Bull to increase and Integral was now supplying a customer in Spain. A repayment claim for 07/06 of £150,819.58 had been made by Integral.  As a result, Mr Kennedy visited Integral on 20 September 2006 and advised Mr Thompson that not further repayments would be made until HMRC had had a chance to investigate the trading situation. He uplifted the documents (copies of which he provided in the bundles to the tribunal).  As before we do not propose to go through all of the invoices but to examine those which gave rise to Mr Kennedy deciding to carry out a full investigation.
Transaction 182
•	The invoice dated 22 August 2006 relates to a sale of Red Bull to Enkay at a price of £12.60 and a value of £44,906.40. In the pack of documents is a CMR headed Hampshire Import Agencies SL of Madrid, which relates to the import of 3564 cases of Red Bull to Integral.
Mr Thompson said that he had purchased this consignment from Glenarvon who had sent him the documentation. Any documentation he received he put with the appropriate documents. We consider that Mr Thompson had not checked the CMR.
Transaction 232
•	The documentation is confusing but relates to a transaction on 16 October 2006. The CMR shows Currie European Transport Ltd as the sender not Integral. The invoice relates to the only sale to Multibirra srl in Italy. HMRC produced an email  dated 16 October 2006 from Multiberra to  Greta and Bill at Mammoet Ferry Transport United Kingdom which states:
“ We recommend you UNLOAD IN ZEEBRUGGE showing ONLY OUR CMR AND OUR INVOICE The English CMR of our supplier and the invoice must not be given  or shown there in Zeebrugge-b but only sent by post to our office in Poggibonsi Italy.. All this is to protect and to give neutralisation to our transactions and in the future to.”
Mr Thompson said in cross-examination that he had wanted to expand his trade into Italy but Multiberra said his Red Bull was too expensive and would not agree to his price nor to pay in advance. Mr Thompson wanted to generate some trust and agreed a price of £12.54 per case and that the goods were to be moved by Currie European Transport in Dumfries He produced to the tribunal an email dated 26 May 2009 from Gaston Schul which attached the CMR referred to and the pro-forma invoice for the shipment dated 5 October 2006. The invoice in the pack is dated the 11 October 2006. Mr Schul also confirmed receipt of the goods on 12 October 2006. It is impossible to tie up the various transactions. The CMR is incorrectly completed and has on it a direction
		ATTENTION DRIVER THIS BOX MUST BE COMPLETED.
The box is unsigned and the CMR is clearly deficient on the face of it.
Transaction 223
•	This relates to a sale 28 September 2006 to Lijfering Dranken in the Netherlands of 3564 case at £12.50 at value of £44,550.
•	The transport company was Beenes and the goods were to be collected from Woodlands
•	One copy of the collection/delivery note, but not the other is signed by the driver.  Mr Thompson produced an email to the tribunal from Mr Beenes dated 20 June 2009 who said that he picked up two loads of Red Bull one in Dudley and one in Whetstone. He indicated that he would come to the tribunal but that it would be expensive. Attached to the email are two transport invoices which may or may not relate to the goods referred to. They refer to Dudley and Whetstone but are dated 1 October 2006 for a collection on 28 September 2006. The goods may well have reached Ljifering Dranken but it is unclear from the CMR how this was achieved as it is incomplete and has a signature of the recipient but no detail as to who signed it. It is significant that the haulier picked up other loads for delivery to Delfgauw and Groningen (presumably Ljifering Dranken). Mr Thompson could not have been sure where his goods were to be delivered.
18.	Following Mr Kennedy’s various visits, he made enquiries as to Mr Brown and Enkay. He discovered that Mr Brown was a disc jockey and Companies’ House revealed that he had been struck off as a director of two companies, Cartridge Express Ltd and Pub Idols Ltd. Also, as mentioned earlier, Enkay was a missing trader. The contract notes for the transactions revealed that Monarch Trading Limited in Glasgow were the agency dealing with the haulage arrangements. It appeared that it had been subcontracted by another company - C Phillips Ltd (Phillips) based in Manchester. Phillips had dealt with Mr Brown previously and it confirmed that Monarch had delivered goods to destinations in London and Manchester for Mammoet Transport. Mr Thompson advised HMRC, in his letter of 21 November 2006, of the enquiries he had made with regard to the movement of the stock. He understood that Monarch had initially collected the stock from the warehouse. He asked Mr Thomson (the contact there) if he might see a recent invoice from Monarch to Enkay for freight charges. He was told that Monarch was sub-contacted from Phillips of Manchester.  Mr Thompson confirmed that once the stock had been collected it was either delivered to Mammoet forwarders in Runcorn or to an address in Manchester. He could not assist Mr Thompson further, as Integral were not their clients. Mr Thompson then contacted Caroline Jeffers at Phillips, who confirmed that that the stock was delivered, on the instructions of Mr Brown, to London, Manchester and to Mammoet in Runcorn. She was unable to produce any invoices as Mr Brown called in from time to time and paid the freight charges in cash. It is unfortunate that Mr Thompson did not make these simple enquiries once he had started trading as part of his due diligence since he would have been put on enquiry. Mr Kennedy produced two spread sheets to the tribunal, which he had compiled to show HMRC’s opinion on the destination of the goods in question. We have checked numbers 135,154,171,183, and 216 and apart from the value of £43,372.80 being incorrect in relation to number 154 (it should read £43,718.40). We believe the schedule to be a reasonable indications as to the destination of the goods on the schedule and that the schedule is not flawed, merely because of the numerical error referred to. Dealing with number 171 the schedule has been constructed as follows. The invoice is dated 4 August 2006 and is valued at £43,372.80. The haulage agent is Monarch and the transporters are C & N Transport Limited. The goods are to be collected from Storage United Kingdom. Mr Kennedy obtained a list of all the deliveries from Integral from Monarch and produced it to the tribunal. No evidence was given to confirm that this was the list provided by Monarch, other than Mr Kennedy’s confirmation, but we have no reason to suppose to the contrary as the list is very detailed and prepared sequentially. The Monarch list at 4 August 2006 shows and invoice revealing a pick up from Seebeggs. (Seebeggs is Seabeggs Road, Bonneybridge, Sterlingshire, the address for Storage United Kingdom). It also shows C & Transport Limited as the haulier. It would appear that the delivery went to Woodlands International Limited at Seaham and not to P & O at Liverpool or to Dover. In all cases the goods were not transported to Malaga. Mr Kennedy then checked the vehicle number NX 04 HKA with the DVLA and they confirmed that there was such a vehicle owned by C & N Transport. The CMR in Integral’s records was numbered 1003368 with a delivery point as Dover for an haulier in Hamburg, Germany. The CMR is signed by Enkay in Malaga and dated 11 August 2006. It indicated that Hansa International Transporters were to be the hauliers who would, presumably, pick the delivery up in Dover. Mr Kennedy has made enquiries of the authorities in Dover and has been advised that there were no compatible journeys by Hansa during the relevant periods. There is evidence of journeys by Hansa during the period, but the lorry was recorded as carrying no load.  The schedule contains 106 examples and whilst it is possible, because of the state of Integral’s records, that some of the entries may not be accurate, we are satisfied that a sufficient number of them are correct and that they show that the goods, in those cases, may not have left the country and, if they did, they did not go to Malaga.
19.	A similar schedule relating to 23 consignments received by Mommoet from Monarch was prepared.  Mammoet acted variously on instructions received from  three English companies and one Danish company namely:
•	Extrade International Limited
•	Europex U K Ltd
•	Rottweiler Ltd
•	Daniel Star APS
The goods were delivered to addresses in France, Belgium, the Netherlands and Spain.
20.  Mr Kennedy also prepared a schedule on the same basis in relation to the 16 transactions with Betimex. The schedule works in exactly the same way. Only two of the CMRs were numbered, which made the checks more difficult. The lack of numbering should have alerted Mr Thompson to the fact that there was something amiss. The haulier is shown as Mo Do, but there are no compatible journeys by this haulier.  The details on the CMRs are all hand written, unlike all of the CMRS for Enkay, which might mean that the printed Mo Do CMRs have been used by third parfties unrelated to Mo Do. Three other hauliers appear on the remaining 3 CMRs  Majax,  Expresslogic and Gunke.  A search for these journeys on HMRC’s data base revealed no journeys compatible with the dates of removal shown on the CMRs. All the original copy CMRs, eventually obtained by Mr Thompson after the investigation started, are incomplete and in many cases illegible.
22.	We are satisfied from the evidence that, although some of the goods may have been transported abroad, none of them appear to have been delivered to Malaga and many of them were undoubtedly delivered into the United Kingdom for destinations within the United Kingdom. There is evidence of a delivery to Dublin, which reached a store in Northern Ireland. Integral had no means of knowing where its Red Bull deliveries were being sent from the information they have retained as evidence of the export of the goods to Malaga. In those circumstances VAT should have been charged to the recipients and as none appears to have been so charged, there must have been a loss to HMRC of that VAT  and quite likely, VAT on subsequent transactions.
The Law
23.	The payment of VAT by a taxable person is governed by sections 24 -29 of the Value Added Tax Act 1994 (the Act). Section 25 requires such a person to account for and pay any VAT on the supplies of goods and services which he makes and entitles him to a credit of so much of his input tax as is allowable under s 26: see s25(2). Section 26 gives effect to what is now Article 168 of EC Council Directive 2006/112 (the VAT Directive) and allows the taxable person credit in each accounting period for so much of the input tax for that period as is attributable to supplies made by the taxable person in the course or furtherance of his business: see s 26(2). Section 30 of Part 11 of the Act sets out various reliefs and exemptions.
Section 30(8) provides
 30 (8) Regulations may provide for zero-rating of supplies of goods, or of such goods as may be specified in the regulation, in cases where-
 (a) The Commission are satisfied that the goods have been or are to be exported to a place outside the member states or that the supply in question involves both-
	(i) the removal of the goods from the United Kingdom: and
(ii) their acquisition in another member state by a person who is liable for VAT on the acquisition in accordance with the law of that member State corresponding in that member State, to the provisions of section 10: and
1.	Such other conditions, if any, as may be specified in the regulation or the Commissioners may impose are fulfilled
Regulation 134 of the VAT Regulations 1995 (“the regulations”) provides:
	Where the Commissioners are satisfied that-
(a)	a supply of goods by a taxable person involves their removal from the United Kingdom,
(b)	the supply is to a person taxable in another member State,
(c)	the goods have been removed to another member State,	
(d)	the goods are not goods in relation to whose supply the taxable person has opted, pursuant to section 50 (a) of the Act for VAT to be charged by reference to the profit margin of the supply.
The supply, subject to such conditions as they impose, shall be zero-rated.
24.	Those conditions have been imposed have been imposed by Public Notice 725 (referred to above) which take effect as tertiary legislation and have the force of law thereby.
Paragraph 3.1 provides that a taxpayer may zero-rate a supply of goods  to VAT registered customers in another member State of the EC provided all of the stipulated conditions are met .These are that :
(a)	The customer’s VAT registration, including the two letter country prefix code is obtained and shown on the VAT sales invoice
(b)	The goods are sent or transported out of the United Kingdom to a destination in another member State; and
(c)	Satisfactory commercial documentary evidence is obtained as proof that the goods have been removed from the United Kingdom
 Paragraph 3.2 directs taxpayers, that, in the event they are not able to meet all the above conditions, they must account for VAT at the correct rate for the same supply of goods in the United Kingdom.
Paragraph 18.1 explains that a combination of documents may be used to provide clear evidence that a sale has taken place and the gods have been removed from the United Kingdom.
Paragraph 18.9 identifies the documents these are:
•	The supplier, consignor, customer, goods, an accurate value, the mode of transport and route of movement of the goods and the EC destination.
             Vague descriptions of the goods, quantities or values are not acceptable.
Paragraph 18.11 explains that the standard of evidence is high and the evidence held must show that the goods have left the United Kingdom and should include the following:
(a)	A written order from the customer showing name, address, EC VAT number and the place where the goods are to be delivered.
(b)	Copy sales invoice.
(c)	Delivery address for the goods
(d)	Date of departure of the goods from the premises and from the United Kingdom
(e)	Name and address of the haulier collecting the goods.
(f)	Registration number of the vehicle collecting the goods and the name and signature of the driver.
(g)	Details and signature of any subsequent/alternative haulier that the transport goods  from the United Kingdom
(h)	Route taken
(i)	Copy of travel/ferry tickets.

So long as the Taxpayer complies with the provisions of the Act and Notice 725 no element of discretion is conferred on the tax authority to refuse the repayment. HMRC contend that the requirements of the legislation are excluded, or able to be set aside, where those requirements are relied on for abusive or fraudulent ends, and the trader concerned is party to, or knew or had the means of knowledge of, those abusive or fraudulent ends. There has been some considerable case law in relation to knowing or the means of knowledge:
i.	In Optigen Ltd, Fulcrum Ltd and Bond House Systems Ltd -v-CCE C354/03,C355/03 and C3484/03 the ECJ said that a right  to input tax could not be denied where the trader had “no knowledge and no means of knowledge” of the VAT fraud. The ECJ in Axel Kittel v Belgium c-440/04 drew on Optigen to formulate the conclusion in paragraphs 51 and 61: 
“51. In the light of the foregoing, it is apparent those traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud…. must be able to rely on the legality of those transactions without the risk of losing their right to deduct input tax…
612. By contrast [to the case where a person did not know and could not have known of fraud] where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct.”
	In Dragon Futures Ltd –v- HMRC VATD 19831 the tribunal formulated the test as follows:
	“ Has the taxable person, at the time of entering [into] a transaction involving payment of value added tax by or to that person, and taking into account the actual knowledge of the taxable person at that time (including knowledge acquired from any enquiry or investigation), taken all proportional steps available to it to ensure that, on the balance of probabilities, no aspect of the transaction is connected with any other party involved in, or any other transaction involving, fraud on the public revenue through the value added tax system?”
We see nothing in these cases which requires the taxpayer to be dishonest before he “ought to have known”.  It seems to us that if he participates in the venture in such a way that he knew or ought to have known that he was facilitating a fraud that would be sufficient to prevent his entitlement to a repayment of VAT. In Olympia Technology Ltd VATD [2057D] the tribunal said:
“We consider that on its ordinary wording “ought to have known” is a factual test with two limbs. First, one should start with all the facts (a) actually known to the person and ask whether in the light of those facts a reasonable businessman would have known the transaction in question was connected with fraud. Secondly, it would include (b) those facts that would have been known to the person if he had taken some action to discover them that a reasonable business man would have taken in the circumstances (which is not necessarily the same as every precaution reasonably required), but which the person did not.”
As suggested in Dragon Futures Ltd (at paragraph 75) the knowledge of the fraud has to be on a balance of probabilities, not beyond reasonable doubt. As the tribunal acknowledged in Olympia Technology Ltd, the test they adopted leaves open a further question. That is whether the reasonable businessman is either (a) one having the skill and experience of the taxpayer or (b) one having the general knowledge skill and experience that may be reasonable expected of a person carrying on the taxpayers’ functions. We share the chairman’s view in Honeyfone Ltd –v- Revenue and Customs [2008] United Kingdom VAT V20667:
“The prevention of fraud is not compromised by addressing actual knowledge. The objective required is satisfied by ignoring what the trader actually thought but considering what he was aware of and his actual knowledge and skill”
Further more, chairman Colin Bishopp said in Calltell Telecom Ltd & Another –v- Revenue and Customs [207] United Kingdom VAT V2066:
	“Much will depend on the facts, but an obvious example might be the offer of an easy purchase and sale generating conspicuously generous profit for no evident reason. A trader receiving an offer would be well advised to ask why it had been made; if he did not he would be likely to fail the test set out in paragraph 51 in the judgement of Kittel.”
25.    We have been specifically referred to Regina (Teleos PLC and other)-v- Customs and Excise Commissioners [2008] QB 600 by Mr Thompson. Teleos concerned United Kingdom Traders that had zero rated supplies of mobile phones to France and Spain. Initially the Commissioners accepted the documents (CMRs) produced by the trader as evidence that the goods had been exported from the United Kingdom, which enabled the traders to zero-rate the supplies. The Commissioners subsequently discovered that the mobile phones never left the United Kingdom due to a fraud on the part of the freight forwarders and the recipients of the supplies. The Commissioners decided to assess the United Kingdom traders’ VAT on those supplies, whilst acknowledging that the traders were in no way involved in any fraud.
Questions were referred to the ECJ to determine whether the goods physically had to be exported in order for the traders to reclaim their input tax or whether a contractual intention to do so was sufficient for the traders to be able to exercise their right to deduction. The Advocate General decided in respect of the first two questions that the first sub-paragraph of article 28 a(3) of the Sixth Directive required the acquirer to have obtained the power to dispose as owner of the  goods, which are dispatched or transported to another member state and thus have physically left the state of origin. The third question was whether the proper completion of CMRs as required by the member state would be sufficient evidence of the goods leaving the country, whether they had or had not. The Advocate General opinioned:
	“83. I am aware that the interpretation I am suggesting here carries a certain     risk. It could lead the supplier into carelessness if he did not have to reckon with liability for VAT in the event of the acquirer merely feigning transport over the frontier. For that reason, I reiterate that the supplier can escape retrospective liability for VAT only if there is no indication that he was involved in the deceptions, or knew anything about them, and if he did everything in his power to ensure the proper levying of the VAT.
For our part, we have decided that so long as Integral did not know nor have the means of knowing that the transactions were fraudulent it could not be deprived of its right to recover the VAT. We therefore need to decide whether Integral took reasonable and proportionate steps to discover whether there was a fraud or not.
Summing Up
26.	Mr Puzey submitted that Integral had failed to take every reasonable step to ensure that it was not involved in a fraudulent activity. HMRC are not concerned with the earlier periods when repayments have been made. Integral traded predominantly with Enkay and Betimex.  Mr Thompson has explained that Integral was unpaid until it received the repayment of its VAT from HMRC, which it then paid to Liquide less commission. It was imperative that Mr Thompson used the correct documentation because if he did not, and repayment was refused, Integral would lose its commission. Mr Thompson had been told on several occasions what he needed to do to ensure repayment. He acquiesced to the specific requirements. In cross-examination Mr Thompson confirmed that he had been too busy making money to pay attention to the critical areas within his documentation and due diligence enquiries. Integral sort to rely on the validity of the CMRs as evidence of the appropriate exports within the terms of Teleos. The Advocate General in Teleos stated at paragraph 53 that a seller incurs a particular risk in making an Intra-Community supply “ex works”. If, contrary to the contractual agreements, the goods are not transported to another member state then zero-rating would not apply. At paragraphs 66,67, and 68 he stated:
  66. While frontier controls still existed, taxable persons could rely in proving the export of the supplied goods on the documents issued by the customs authorities. Since the disappearance of the internal frontiers, taxable persons no longer have that particular reliable means of proof at their disposal. Instead, proof that the goods have been taken across the frontier can in general be proved henceforth only by the declarations of private parties.
  67. Particularly suitable for that purpose is a consignment note drawn up in accordance with the provisions of the Convention on the Contract for the International Carriage of Goods by Road (CMR) and on which the recipient has noted receipt of the goods in another member state.
  68   A CMR note is signed by the sender of the goods and the forwarding agent and serves as proof that the forwarding agent has taken over the goods: see article 5(1) and 9(1) of the Convention. A copy accompanies the good and is handed over to the recipient on demand by him: see article 5(1) and 13 (10. If the recipient notes receipt of the goods on the consignment note, then at least three persons, who are usually independent of each other, will have contributed to providing proof that the goods have been taken to another member state. That reduces the risk of fraud, but cannot exclude it entirely.
At paragraph 76 the seller must also satisfy himself of the seriousness of his business partner. The objective of preventing tax evasion justifies heavy requirements being involved in fulfilling that obligation. It is for the national court to decide whether the supplier has fulfilled it.
Integral should have taken every reasonable measure in its power to ensure that the intra- Community supply it was affecting did not lead to its participation in tax evasion. Mr Puzey referred us to the tribunal decision in Brendan MacMahon t/a Irish Cottage Trading Company v The Commissioners for her Majesty’s Revenue and Customs MAN/2007/0744 which also related to Mr Brown and Enkay. The Chairman Michael Tildesley stated that: 
	“Honest traders can avoid liability to account for VAT on fraudulent transactions, provided they take every precaution reasonably required in the circumstance. They are not required to take every possible requirement”.
The tribunal decided that the Appellant had not met the appropriate standard
In Appleyard Vehicle Contractors Limited v The Commissioners for her Majesty’s Revenue and Customs MAN/06/0576 Chairman Colin Bishopp stated:
	“In my judgment Teleos clearly supports the approach taken by the Commissioners in this case. The Court has indicated that a supplier is expected to take precautions; the precautions the Commissioners require, held by Briggs J in J P Commodities v Revenue and Customs Commissioners [2008] STC 816  to be proportionate, seems to me incontrovertibly appropriate, directed as they are to demonstrate that the conditions for zero-rating of the supplies is met”.
Integral have not been able to establish whether the goods have left the country. Most of the CMRs for Enkay show delivery to Dover and collection by Hansa from Hamburg. The CMRs are incomplete on the face of them and the CMRs for Bitimix are not only incomplete, but also hand written. All the internal documentation in relation to Enkay shows that delivery was to P & O in Liverpool. Mr Thompson has considerable experience in exporting. He had worked with Mr McCormack for three years and subsequently in Hollstar in relation to the satellite business. At the start of the trading with Integral he had received advice from HMRC and been given Notice 725, which he confirmed he had read and would follow.  He gave evidence that he had been referred to Enkay through Glenarvon, a competitor. It is unlikely that Glenarvon would have given up a substantial trade in Red Bull for the reasons given to Mr Thompson and he should have been put on notice that there was something amiss. Mr Thompson had had no difficulty in arranging finance, which was Glenarvon’s explanation for curtailing the sale of Red Bull. Integral was handling 3 loads of Red Bull each week amounting to £130,000 of business. Over six months this approximated £5,500,000 of turnover. The business was involved in an easy purchase and sale that was generating a particularly generous profit. Enkay required a trader who 
•	had no premises;
•	had no overheads; 
•	had no transport; 
•	was prepared to receive payment  in advance;
•	was prepared to sell at a specified price;
•	would make a guaranteed profit with no risk.
The catch was that Integral had to trust Enkay and Betimex to remove the goods. The due diligence carried, out by Integral, was deficient. Integral had not been able to obtain confirmation of Enkay’s VAT number from Redshill, but it decided to start trading with them in any event. It had obtained confirmation of its VAT details from Europe. It made no attempt to confirm the VAT number for Betimex. It made no enquiries with regard to Liquide although Mr Thompson did visit the premises and he assumed that it was a genuine business.  He made no enquiry as to Foodline’s credentials although he must have considered it unusual that Enkay was paying Integral through a third party. Mr Thompson indicted that he was unconcerned about Foodline as he was going to be paid in advance and more quickly.  It was not reasonable for Mr Thompson to expect HMRC to translate the documentation he obtained both from Enkay and Betimex. Without such translation Mr Thompson could not know that the documents were what they purported to be. There were clear warning signs that all was not well. The CMRs were not being returned quickly enough. In April 2006 some of the Red Bull was transported to Ireland when he understood it was destined for Malaga. Subsequently he should have made further enquiries of other deliveries. When Mr Thompson was told that Enkay was missing he made enquiries of Monarch for the transport details and had he made those enquires earlier he would have realised that the trading was fraudulent. 
HMRC accept that they had allowed the repayment claims up to April 2006, but this did not mean that Mr Thompson should not be alert to other discrepancies. It is no part of HMRC function to vet traders for the taxpayer. HMRC have established that both Enkay and Betimex are missing traders. Mr Thompson has accepted in his evidence that he did not take sufficient care with regard to both his due diligence and his correlating of the CMRs and other documentation. Mr Kennedy has identified in his schedule that none of the goods reached their destination and that as a result zero-rating was not appropriate. As a result HMRC have not recovered the VAT and there is a loss to the Revenue. It is likely that there could be further losses arising from the redistribution of the goods within the United Kingdom. In the circumstances, as Integral has not taken every reasonable care to ensure that it is not involved in a fraudulent activity and the CMRs are defective, Integral is not entitled to a repayment of its VAT and the assessments have been correctly raised and the appeal should be dismissed.
27. Mr Thomas submitted that he was not a fraudulent individual and that he was anxious to clear his name. He apologised for being unrepresented and thanked the tribunal for its assistance. He confirmed that he should have been more diligent, but that he had been elated at the success of his business. The administration involved in running two companies and processing the orders, as a sole trader, was time consuming. The CMRs, with which he dealt, were not very different from those he had seen for other traders in the past. He had not appreciated that the CMRs had to be filled in by him. He thought it was in order for the haulier to fill the first one in, which the haulier retained. The driver would keep the next one and EnKay eould keep the last one, sending the copy back to Integral. He accepted that he had had to make telephone calls for the CMRs but they were usually received within two to three weeks. When he was advised by the Enkay that the goods would be delivered to P & O at Liverpool, he assumed that that meant that they would be sent to Malaga from there. He submitted that it was not inappropriate to rely on that information as he had no reason to suppose it would not happen. If he loses the appeal the outcome is traumatic. He has a £100,000 loan secured on his property and he owes approximately £400,000 to Liquide. In the circumstances he should be allowed a repayment for the outstanding VAT and the appeal in relation to the assessment should be allowed.
The decision
28.	We have considered all the evidence and the law and we have decided that Integral is not entitled to a repayment of the outstanding VAT for the periods 04/06 to 08/06 (for which the periods 07/06 to 11/06 are the appropriate periods for the refusal) and that the assessment for the periods 12/06 and 01.07 respectively should stand. There is no doubt that the missing trader intra-community frauds are complex and that they rely to a large extend on greed and the presentation of a complicated structure to an innocent trader. It is not necessary for that trader to be fraudulent, but for the fraud to be successful it is necessary for that trader to take insufficient care of the relevant documentation. It is easy to understand why a trader such as Integral would be tempted to take the risk. After all it was easy money at a time when trade was not particular buoyant. In Integral’s case Mr Thompson had considered he had a working arrangement with HMRC, and had consulted them when he first started to trade with Betimex. They had seen his documentation, and whilst they accepted it was not perfect they thought it was robust enough to make the initial repayments. It is part of the fraud that traders such as Integral should be lulled in to a sense of false security. Mr Thompson was not, however, a new trader. He had been in business one way or another for many years. He was familiar with CMRs and exporting in particular. It is surprising that he seems to have learnt nothing from his experience with ‘Sonyset’ and Eureka Trading. He had to close that company down because he had not taken sufficient care to ensure that the patent arrangements were correct for the product. Further more the arrangements he entered into, to accommodate the trading were sufficiently complex to put him on notice:
•	The suggestion that Red Bull in Austria wanted Liquide, a Scottish company, to export Red Bull to Spain was in itself unusual. Why could it not supply Spain direct?
•	The position was even more incredulous when Integral was told that Liquide would have to set up a Scottish company as it could not sell to its products in England, because it was only allowed to sell in Scotland. The setting up of a Scottish company to assist Liquide in circumnavigating its restrictive covenant lacked integrity and no doubt convinced the fraudsters that Integral was prepared to be flexible.
•	Mr Thompson was unclear as to who had introduced him to Liquide. It became obvious in cross-examination that it must have been Mr Ferguson. That was confirmed when Mr Thompson advised the tribunal that he shared his commission with Mr Ferguson. Mr Ferguson was not available to come to the tribunal, as he was now living in Spain, as was Mr Brown.  Mr Thompson said that he had a witness statement from Mr Ferguson which he wished to produce to the tribunal. Judge Porter disallowed that application on the basis that it was too late; Mr Thompson had had ample time to obtain witness statements, when he was being represented; and, in any event, HMRC would be unlikely to agree the statement as they would want to cross-examine Mr Ferguson.
•	The arrangement with regard to the delayed payment of VAT to Liquide was also peculiar. Why would Liquide agree to that arrangement? If there was a problem with the repayment, Liquide would have to find the VAT out of its own resource. In fact Mr Thompson says that he owes Liquide approximately £400,000.
•	 Mr Thompson might be forgiven for not pursuing his enquiry in relation to Enkay’s VAT number at Redhill. He did, after all, obtain confirmation from Europe as to its VAT status. He was not, however, entitled to treat the un-translated documentation and information from Enkay and Betimex as sufficient. Nor was he entitled to look to HMRC to translate the documents for him. He had not taken every precaution that he could reasonably be required. Any reasonable business man would have had the documents translated, given the volume of business and his concern that he should not be involved with fraud.
•	Mr Thompson was familiar with the payment of money from abroad through the banking system. He mentioned both Amex and Thomas Cooks. He must have been put on enquiry when Mr Brown advised him that payment was to be made through Foodline a business based in Manchester. The name alone would have put any businessman on enquiry, when he learnt that the company dealt in finance.
•	Mr Thompson confirmed that he was familiar with the exporting procedure. He had been told, and could have found out if he had chosen to ask, how to complete the CMRs. From our examination of the CMRs for Enkay they look suspiciously alike. We would not have expected all the information in the first 5 boxes and box 16 to be identical.  Further, those that have the reference ‘pro_forma’ invoices are also identical. They identify Dover, United Kingdom to be the point of exit and Hansa Cargo Transport Gmbh as the haulier from Hamburg Germany. Nowhere in Integral’s invoices, and collection notices is either Hansa or Dover mentioned. Mr Thompson should have been put on enquiry when he received the first CMR. It would appear that he was unconcerned with the discrepancy, likewise when he telephoned Mr Brown to advise about the transport of Red Bull to Dublin.  The information on the CMRs did not bear any relationship to his invoice and collection notes. Those required the goods to be delivered to P & O in Liverpool. The position with regard to the exports to Betimex was no better. He had some copy CMRs but they were indistinct and of no real value. Even the original copies he obtained from Betimex, once the enquiry started, were hand written and none of them bear a number.  The sender had been, variously, Woodland; Currie European Transport; and on a few occasions Integral. As one had been completed in Integral’s name, Mr Thompson must have known that Integral should have been the sender in every case. Some of the CMRs were properly signed but all of them were incomplete.
•	The standard of evidence is high and even where a supplier leaves transport arrangements to a customer he must take care that the goods reach the correct recipient. Mr Thompson was also lax in this regard. The process did not seem to be under his control
Teleos sort to strike a balance between the VAT loss being suffered by the State as against the trader. If a trader is to be safeguarded from the loss of his repayment, he needs to have taken every reasonable care to ensure that he is not involved in a fraudulent activity and that he neither knew nor ought to have known that the transactions were fraudulent. The test is objective, but we share the chairman’s view in Honeyfone Ltd –v- Revenue and Customs [2008] United Kingdom VAT V20667:
“The prevention of fraud is not compromised by addressing actual knowledge. The objectivity required is satisfied by ignoring what the trader actually thought but considering what he was aware of and his actual knowledge and skill”
28.	Mr Thompson was familiar with the procedures. He knew that he had to make appropriate enquires as to the individuals he was dealing with. He failed to do so. He knew that he needed to keep sufficient documentation for the purchase and sale of Red Bull. He failed to do so. He had been told to be aware of situations where the goods were sold ‘ex works, yet he made no enquiry. When he actually did so, he was able to discover that his Red Bull consignment never reached Malaga. It may have been transported abroad under a different contract. Some of it may have remained in the United Kingdom but at the time he was unaware of the specific destination. He had the same failings with regard to Betimex. We were surprised, however, that he had never visited Betimex as he had said that he had been to Poland on a number of occasions. This was presumably when dealing with his colleagues at Hollstar when compiling the magazine. The CMRs alone, had they been correct, would not be enough.  To protect Integral, Teleos requires a trader to use every reasonable care. This involves making proper enquires of the various individuals and traders involved. Perusing credit references and bank details. It also requires the in-house documentation to be robust. There can be mistakes from time to time, as a trader is not required to be perfect. Integral’s in-house documentation was far from satisfactory and the information on those documents should have put Mr Thompson on enquiry when considering the CMRs. We therefore dismiss the appeal and confirm that no repayment is to be made and that the assessment is to stand. We make no order as to cost as none were requested.

TRIBUNAL JUDGE
         Release date: 14 April 2010

‘Aide Memoire’ for evidence in chief for John Thompson
1.	Background to his experience. 
•	When was he chef 
•	What did he trade in as Hollstar ltd
•	Why change to Integral
2.	Turnover of Integral
•	Why purchased Red Bull
•	Cost of Red bull (£12.40 per case)
•	Purchase price from Liguide / Sian Trading Ltd
•	Sale price to Enkay/Betimex
•	Profit margin. 
•	Value of  average transaction
•	How financed
3.	Explain procedure for sales to Enkay and Betimex
•	Ordered from who How evidenced
•	Where were the goods 
•	Invoice
•	CMRs
•	Goods “ex works” how did he know they were being dealt with properly
•	How transported and checked by Mr Thompson.
•	Was he aware of subcontractors for transport
•	How checked left the country
•	Did he inspect any of the goods? 
4.	Due diligence
•	What was his experience? What had he been told to do?
•	Had he read Notice 725 and understood it?
•	Started trading before due diligence Why?
•	Liquide and Sian Trading Ltd
•	Enkay  Why were the documents not translated?
•	Betimex   Why were the documents not translated? Was he aware of the Trade?
•	Drink Direct Polska
•	Foodline Services limited 
•	CMRs 
o	Did you initiated them 
o	How do you understand that they work
5.	Mr Thompson needs to satisfy the tribunal (on the balance of probabilities) that he took  every reasonable care to ensure that he was not involved in a fraudulent activity and that he neither knew or ought to have known that the transactions were fraudulent.