[2011] UKFTT 5 (TC)

TC00882

Appeal number:  TC/10/0388

Value Added Tax – VAT Regulations 1995, Regulation 134 – Zero Rated Supply – whether conditions met of supply to a person in another member state – supply of car – identity of car disguised or missing – condition met.  Appeal allowed.

FIRST-TIER TRIBUNAL

TAX 

	DOM BUCKLEY IRS LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE:	W Ruthven Gemmell, WS 
MEMBER:			Ian Condie, CA

Sitting in public at George House, 126 George Street, Edinburgh on Friday 19 November 2010

Dom Buckley, for the Appellant

John Nicholson, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION
Introduction
1.	This is an appeal by Dom Buckley IRS Ltd (“DBL”)’ against an assessment of VAT and interest for £44,273.31 issued on 5 September 2008 by the Commissioners of HM Revenue & Customs (“HMRC”).  The assessment was in respect of output tax on the sale of a Ford Focus world rally car which DBL claimed to have sold to a business in Spain,Vitoracing Club Deportivo (“Vitoracing”), which had a Spanish VAT registration number but which HMRC claimed had not been so sold and, therefore, failed to meet the criteria to allow the supply to be zero rated.
Legislation
Value Added Tax Act 1994 -
Supply of goods or services in the United Kingdom 
Section 7
Place of supply.
(1) This section shall apply (subject to sections 14 , 18 and 18B) for determining, for the purposes of this Act, whether goods or services are supplied in the United Kingdom.
(7) Goods whose place of supply is not determined under any of the preceding provisions of this section but whose supply involves their removal to or from the United Kingdom shall be treated—
(a) as supplied in the United Kingdom where their supply involves their removal from the United Kingdom without also involving their previous removal to the United Kingdom; and
(b) as supplied outside the United Kingdom in any other case.

The Value Added Tax Regulations 1995 -
Regulation 134 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, and
(d) the goods are not goods in relation to whose supply the taxable person has opted, pursuant to section 50A of the Act, for VAT to be charged by reference to the profit margin on the supply, the supply, subject to such conditions as they may impose, shall be zero-rated.

The Facts
The following facts were found:-
2.	DBL was established in 1958 and since the mid 1970s provided sales of and services to rally cars and to the teams that race them.  It is the only company in Scotland that provides these services and supplies and one of few in the UK.  
3.	A Ford Focus world rally car with the registration number EX02 OBC was owned by the Eddie Stobart Racing Company for a period ending in February 2006.  At that time, DBL’s three year contract to run five cars in British championships for the Eddie Stobart team came to an end.  The Eddie Stobart Group instructed DBL to sell EX02 and an advert to this effect appeared in the motor sport advertising papers.  DBL were approached by a world rally car driver, Claudio Aldecoa (“Claudio”) who travelled to Hassington in Kelso to inspect and test drive the car on 23 February 2006.  
4.	World rally cars such as EX02 are quite different from the usual standard road cars even although they share the same names such as “Ford Focus” or “Mitsubishi Lancer”.  World rally cars are relatively rare and in the case of Ford Focus type cars only, approximately, ten are built each year.  They all have significant modifications from the standard road cars on which they are based which involves replacing the engine and installing, where necessary, special gear boxes and making a great many other additions.  As a result of the work and engineering that is required for these cars they tend to retail as new in Sterling terms for in excess of £350,000.  
5.	On 23 February 2006, Mr Dominic Buckley (“Mr Buckley”) made an agreement with Claudio, acting on behalf of Vitoracing, to sell the car as part of a specific package which included support for the car after it was sold at its first few major championships and a requirement to provide spare parts.  Mr Buckley explained that it was because of these additional requirements that DBL were selling the car rather than DBL simply acting as agents for the Eddie Stobart Group who were not in a position to provide these additions.  
6.	Claudio advised that he would arrange for payment by telex transfer and it was agreed that the car was to be transported to Spain where it would almost immediately take place in its first rallying event at which DBL were to provide engineering and support.  
7.	Accordingly, the car was transported in a closed trailer by road and Euro Tunnel to Spain.  Because of the considerable value of these cars they are transported in closed containers and accordingly no documentation is usually made available or approved by official authorities as, to all intents and purposes, it is the vehicle towing the trailer and the trailer itself that are the vehicles moving from one member State to another. 
8.	Claudio provided DBL with the name of Vitoracing together with a VAT number G‑01173525.  This was contained in an invoice number 201485, dated 23 February 2006 addressed as follows, “FAO Claudio, C/O Vitoracing Club Deportno, with the words “supply one Ford Focus world rally Car, registration number: EX02 0BC, complete with a spares package as listed (a number of different parts were then listed) at a total price of £246,430”.  There was no mention on this invoice of any VAT being payable and nor that the supply was zero rated.  
9.	The car was dispatched from DBL on the 27 February to enable it to be in Spain for a rally on 3 and 4 March.  DBL considered that the contract conditions were all purified on 6 March 2006 by which time they had received telephone confirmation from their bank that two instalments had been received, the first for £99,189 on 27 February and the balance of the purchase price on 3 March 2006.
10.	In 2006 DBL was not using an internet banking facility and, accordingly, documentation from the bank giving the details of these payments arrived some weeks after 6 March 2006.  When the statements did arrive from the Bank they showed that the payments made for £99,189 on 27 February 2006 and £147,241 on 2 March 2006 had been made to DBL by order of Naseem al Itehad Trading (LLC) at a PO Box in Dubai.  The bank had credited these amounts to DBL after deducting two £7 commission charges so that the total amount credited to the account was £14 less than the amount received in the bank’s hands.  
11.	The invoice to Vitoracing (albeit incorrectly spelling Deportivo’s name as Deportno) was taken by Claudio on his departure from Scotland after the 26 February 2006 meeting and the first telex transfer arrived in the DBL’s Royal Bank of Scotland account on 27 February 2006.  
12.	At the time of the transfers DBL presumed the funds were coming from Vitoracing and it was only when they received the confirmation from the bank that they noted the different identity of the payer.  They assumed, however, that the actual payer was the backer or sponsor of Vitoracing.
13.	On 19 March Claudio contacted DBL by an e-mail which seemed to originate from the United Arab Emirates with a subject heading “Form cludio”.  This e-mail stated that the person who paid for the car was a Mr Abdullah F Aboodi Al-Shaikh (“Skaikh”) and quoted his residency card number in Dubai.  The e-mail also asked for a letter from DBL stating that Mr Al-Shaikh was the owner of the car and asking that the letter confirmed the amounts and dates of bank transfers.  The e-mail furthermore gave the company details [at an address in Vitoria, Spain and also quoting the same VAT number that DBL had been given on 23 February by Claudio] for the invoicing of tyres and other services which were subsequently provided to Vitoracing.  
14.	At this time Claudio also asked for the invoice to be back dated but the reason for this was not known.  Mr Buckley stated that a back dated invoice was produced dated 27 February 2006, being the date of the first payment, and bearing the invoice number 201464 in respect of one Ford Focus World rally Car, registration number EX02 OBC, Chassis number, WF0BXXBZAB2Z29433 for a total amount of £246,416.  This latter figure represented the amount credited to DBL’s bank account and is £14 less than the amount received by the bank.  DBL stated they felt issuing this invoice was an error and they should not have issued it.  This invoice did not cancel the previous invoice to Vitoracing and the second invoice was addressed to Skaikh.  It was not Skaikh but Naseem al Itehad Trading LLC who had made the payments but this was not noted by DBL until the HMRC enquiry had commenced.  DBL refused to issue the letter stating that Skaikh was the owner of the car.
15.	Between March and July DBL supplied parts and labour for the Ford Focus Car which were invoiced to Vitoracing using the same VAT number which has been supplied by Claudio on 23 February 2006.
16.	Claudio had been advised that DBL would apply for the revocation of EXO2’s UK registration as it had been permanently exported, within one year, as the law required, of its removal from the UK.
17.	In January or February 2007 Claudio telephoned and asked DBL to supply him with another invoice showing the car under valued by 90% of its sale value.  That is to say, DBL were asked to make an invoice for only 10% of the amount the car had been sold for.  DBL stated in evidence that Claudio became abusive after DBL declined to provide this and said that Claudio’s expressed motivation for asking for this invoice was that he did “not wish to pay taxes on the car”.  On 12 April 2007, DBL sent a V5 form to the DVLA at Swansea advising them that the car had been permanently exported.  It was stated in evidence that it is not necessary on a form such as a V5 to enter the name of the transferee and in any event DVLA forms refer only to registered keepers who are not necessarily the owners.  
18.	The effect of the DVLA licensing coming to an end meant Vitoracing could not rely on the UK registration and it seems that following this Claudio and/or Vitoracing registered a red Ford Focus automatic standard road car with the Spanish vehicle licensing authorities.  Evidence was submitted of a licensing certificate accompanied by a certified translation.  This showed a vehicle history report for a vehicle with the registration number 5638 FRJ with a date of registration as 1 March 2000 for a Ford Focus 2 door hatchback with 5 seats, a petrol engine and automatic transmission but the colour of the car was left blank.  This document also stated that there had been one transfer of this car since the date of its registration and that the date of the transfer was 30 April 2007 although the previous owner appeared to have terminated the insurance on the car on 16 March 2007.  
19.	HMRC, as part of their investigation of this matter, obtained a report from Agencia Tributaria (“AT”), a Spanish Government agency.  In an, undated, information request AT referred to a letter/report dated 5 May 2009, which was not exhibited to the Tribunal, from which AT stated that Vitoracing denied having acquired the vehicle and contended that the Ford Focus, which was registered with the Spanish authorities with the car pate number 5638 FRJ (referred to in the letter as 563S FRJ), had no relationship to the vehicle being the subject of the request, that is to say EX02.  AT went on to say that as the only invoice provided (presumably by HMRC) was to an individual not residing in Spain, which consequently did not have a Spanish tax identification number, meant that the delivery could not be considered as tax exempt.  The information request also said that AT had been unable to specify what was the destination of the vehicle EX02.  
20.	A number of photographs were submitted to the Tribunal showing a red Ford Focus rally car participating in car rallies with the number plate 5638 FRJ.  In evidence, HMRC’s review officer, Mr Scott Thomson, conceded that it was possible that the number plate from the car registered as an automatic car with the Spanish authorities may have been transferred onto EX02.  The true determination of this would have been either by making inspection of the chassis number or by another number which it was stated was irremovable and which was welded on to the chassis itself.  Mr Buckley offered to pay for the travel expenses of an officer of HMRC to travel to see the car to verify this but this offer was not accepted.  
21.	A further document, a “History of the Ford Focus World rally Car”, was submitted purporting to be a list tracking ownership of a number of cars and showing the different number plates which the cars had been or were currently registered under.  This included EX02.  It was, however, clear that this list was produced by a keen rally car enthusiast who emphasised that the information contained in this document was largely based on rumours and could sometimes contain false information.  
22.	An e-mail sent to HMRC by the head of Spain VAT CLO dated 13 May 2009 and submitted by HMRC at the hearing stated that the Spanish VAT local services were “still investigating”.  Vitoracing had informed Spanish VAT that, whilst admitting there may have been some minor commercial relationships with DBL, maintained that the rally car was not purchased by them.  The e-mail went on to ask that the UK VAT send Spanish VAT any documents to evidence that the rally car was supplied to Vitoracing or to Claudio so that their (Spanish) inspection services could continue with the investigation.  The UK VAT response, apparently of the same day, attached a response for further information but the attachments to this response were not submitted to the Tribunal.  
23.	A number of lists of rally car races were exhibited showing Claudio’s name and a description by reference to the number plate of the car he had driven and included EX02 and 5638 FRJ.  
24.	Evidence was given by Mr Dominic Buckley, for DBL, Karen Ross, the original investigating officer for HMRC and Mr Scott Thomson, the review officer for HMRC.  All the witnesses were examined and cross examined.  All the witnesses were found to be credible.  
25.	The invoice dated 27  February to Shaikh had an earlier invoice number than the invoice of 23 February to Vitoracing.  In addition, the subsequent invoices to Vitoracing for spares and parts had the same invoice number as 23 February invoice but were dated much later.  Mr Buckley accepted that these were errors which he could not explain but thought they may be related to the fact that the company were introducing a new computer accounting package at that time.  
26.	Karen Ross carried out a routine visit of DBL in March 2008.  Her attention was drawn to the input tax in 2006 for the purchase of a rally car and she looked at the disposal and raised queries.  
27.	Initially DBL responded that the car had been paid for by a man in Dubai but bought by a Spaniard.  Karen Ross then requested the VAT number for the Spaniard, Claudio, but then was given the number for Vitoracing.  Karen Ross’ investigation led her to believe that the car was supplied to someone in Dubai who was not from the member state and therefore the zero percent VAT rate could not be claimed or used.  Karen Ross stated that the criteria to be eligible for zero rating was that the article, being the subject of the supply, must be removed from United Kingdom, acquired by an EU business or person, and that there must be commercial evidence to support the transaction allowing the zero percent rate to be claimed.
28.	Karen Ross tried to obtain evidence and approached the Spanish authorities.  This information was sent in an electronic form and included Vitoracing’s VAT number and asking them to confirm the purchase.  In cross examination Karen Ross confirmed that she did not know at the time of her enquiries that the actual payments to DBL’s bank accounts had been made by a company who was different from Shaikh, whose name appeared on the invoice.  
29.	Mr Scott Thomson gave evidence that in carrying out his review he believed the car had not been sold to a VAT registered business in the EU because he believed the invoice to Vitoracing had been cancelled and replaced by one to Shaikh in Dubai.  He then looked at the Spanish registration form provided by AT and concluded that it was a separate car.  In particular, Mr Thomson noted that this car appeared to have been owned by Vitoracing since 2000 and concluded that it could not possibly be the car EX02, which had not been initially registered or even existed until 2002.  Mr Thomson agreed that it was possible that EX02 was in Spain and was carrying the number of the car which was registered with the Spanish number 5638 FRJ being an automatic transmission car but stated that even if that were the case that it did not, in his view, mean that it was owned by Vitoracing.  
Submissions from HM Revenue and Customs
30.	HMRC conceded that the supply of goods had been made by a taxable person and that the goods had been removed to another member state but said that the supply was not to a taxable person in another member state.  They stated that although the permanent export form had been submitted to the DVLA within the one year time period the sale of the car had not been entered onto the EC sales list and referred to notice 725, section 16 to support this.  This notice states that in addition to a VAT Return you may have to complete the EC Sales List.  
31.	A copy of Section 16 was submitted at the Tribunal Hearing and bore an origin or issuing date of December 2009.  It was not established that regulation 16 was in force in 2006 and was, therefore, applicable.  HMRC claimed that Vitoracing had denied acquiring the vehicle and consequently that if they did not own it then the owners must be either Claudio, who has not registered for VAT or Shaikh and/or his company, neither of which were taxable in a member state and, consequently, the supply could not be zero rated.  HMRC doubted whether the first invoice had been given to Claudio on 23 February and drew reference to a letter from DBL dated 29 May stating that “Mr Claudios company address and VAT number which were supplied to us in an e-mail from him dated 19 March, should be referred to”.  
32.	HMRC stated that the car was not listed on the EC sales list in their view because there was uncertainty as to who owned the car and accordingly the default position is that the standard rate of VAT should apply.  HMRC contend that the transfer of the Spanish plate did not prove that Vitoracing own the rally car.  HMRC moved that the appeal be dismissed.
Submission from DBL
33.	DBL say that the contract was fulfilled by 6 March according to Scottish Law, with an agreement to sell, followed by payment and delivery.  DBL say that raising the second invoice was an error and should not have been done; that the car EX02 was taken to Spain and was entered in to races under Claudio and the Vitoracing name starting in March 2006.  DBL say they know the car was used in Spain.  DBL say that it would be impossible for the car registered with the Spanish authorities bearing the number plate 5638 FRJ to be used in rallies without the expenditure of at least £200,000 to make it suitable for this type of task.  DBL say that Claudio and/or Vitoracing through their actions clearly tried to ensure that the car was not owned by Vitoracing to avoid tax but when DBL refused to give them the cover to do this by issuing false invoices or a letter saying Shaikh was the owner, and following the termination of the UK registration, they then used a similar Ford Focus car as a “ringer”, or dupe, to achieve this.  
34.	DBL accepted that although the invoice numbers regarding the sale might be wrong there were subsequent invoices to Vitoracing using exactly the same VAT number as had been originally supplied on 23 February.
35.	DBL say that the car was supplied to a person taxable in another member state and that for their own reasons and as a result of actions outwith the control of DBL chose to conceal that ownership from the Spanish Tax Authorities.  DBL say that the Spanish registration document shows clearly that there was a registration of a standard automatic Ford Focus car at about the time as it would be necessary for Vitoracing to obtain a registration number for EX02 as the UK registration was lapsed and that in their review HMRC have misunderstood the form and assumed that the car was owned by Vitoracing at the date of the first registration.
36.	The registration document of the Spanish car did not disclose a name but does did disclose the VAT number of Vitoracing.
Reasons for the Decision
37.	The issue before the Tribunal was whether the supply of EX02 had been made to a “person taxable in another member state”.  The other conditions for a zero rated supply of EX02 were agreed by the parties.  
38.	The Tribunal were satisfied that a verbal agreement had been made by Claudio to DBL, that Vitoracing’s Spanish VAT number was given to DBL and that an invoice was taken by Claudio at the date of that agreement on 23 February 2006.  
39.	The Tribunal were also satisfied that the car EX02 was delivered to Vitoracing, that it was entered into races in March in Spain in 2006 and that DBL provided maintenance and back up services for the first of those races as part of the agreement of sale, for which further invoices were paid.  
40.	The Tribunal, therefore, were satisfied that Vitoracing took possession of the car EX02 and that DBL did not discover the identity of the payer until some time after the delivery of the car and then assumed that payment was being made by a company based in the United Arab Emirates as part of a sponsorship deal.  
41.	The Tribunal noted that that the invoice to Vitoracing whilst not being cancelled was replaced by an invoice to Shaikh, which was not competent and which DBL regretted they had issued as they know they should not have done so.  
42.	The Tribunal accepted that the attempts by Claudio and by Shaikh to arrange for the ownership of the car either to be transferred to Shaikh, notwithstanding that he had personally not paid for it, or to have the invoice price to Vitoracing reduced by 90% were evidence that attempts were being considered to avoid tax by Claudio and/or Vitoracing in Spain.  
43.	The Tribunal accepted Vitoracing had purchased 5638 FRJ, because the registration certificate had Vitoracing’s Spanish VAT number even although their name was not shown on the document which also did not state the colour of that vehicle.  
44.	The Tribunal accepted that Vitoracing purchased a similar vehicle which was not the same as EX02; it had a different chassis and registration number but more importantly was an automatic car which would make it inappropriate for world car rallying championships without extensive and expensive modification. 
45.	The Tribunal, therefore, were of the view this car appeared to have been purchased so that its number plate could be transferred to EX02 which would be necessary so that the car could be entered in world rally car championships as twelve months after the sale of EX02, that EX02 number was de-listed from the UK registration records.  
46.	The only way the matter could have been checked with any certainty would have been for HMRC to have carried out an inspection of the car, in Spain, for which DBL offered to finance the travel costs, as this would have ascertained whether the car with the registration number 5638 FRJ had the same chassis and welded on number as EX02.  This offer was refused by HMRC.  
47.	The evidence put forward by HMRC and the Spanish authorities was not persuasive to the extent that the evidence was incomplete, referring to documents which were not submitted to the Tribunal.  The e-mail dated 13 May 2009 submitted by HMRC at the Hearing stated that at that date the Spanish VAT local services were “still investigating Vitoracing”.  This e-mail asked HMRC to send Spanish VAT any documents to evidence that the rally car was supplied to Vitoracing but no details of the response was or could be submitted to the Hearing.  
48.	The document entitled “A History of the Ford Focus World rally Car”, whilst stating that it was based on fact and rumour, was persuasive in light of the other evidence.  In particular, a list of the rally entries showing Claudio and Vitoracing taking part over an extended period with the car being driven being described as variously EX02 and 5638 FRJ, left the Tribunal with the view that this was one and the same car. EX02.  
49.	In evidence, the HMRC review officer accepted that it was possible the registration number of the Spanish registered car 5638 FRJ being an automatic transmission car could have been transferred on to EX02 which had a manual gear box and an engine suitable for world rally car racing.  
50.	The Tribunal were also persuaded that the registration document for 5638 FRJ, whilst showing this car was registered for the first time in 2000, prior to the date of the existence of EX02, was transferred, according to the document, on 30 April 2007.  The Tribunal consider that the transfer of the number 5638 FRJ to EX02 was consistent with Vitoracing acquiring a registration mark for a Ford Focus car which was necessary to enable them to enter a Ford Focus car in world rally car races given the loss of the UK registration mark as a result of the sale.  
51.	The Tribunal find that the vehicle was supplied to a taxable person, Vitoracing, in Spain, which is a member state.  The Tribunal consider that all the conditions for allowing the supply to be zero rated were met.
52.	The appeal is, accordingly, allowed.
53.	This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

W RUTHVEN GEMMELL, WS
TRIBUNAL JUDGE

RELEASE DATE:    14 DECEMBER 2010