20513

Default surcharge – failure to make return and to pay tax in time due to unforeseen tax audit demands of another EU country – whether a reasonable excuse –no – whether the penalty disproportionate – no – appealed dismissed

LONDON TRIBUNAL CENTRE

	SONY ERICSSON MOBILE COMMUNICATIONS AB	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	Malcolm Gammie CBE QC (Chairman)
					Praful Davda FCA

Sitting in public in London on 4 July 2007

Geoffrey Tack of Ernst & Young LLP for the Appellant

Matthew Barnes, counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION
Introduction
1.	Sony Ericsson Mobile Communications AB (“the Appellant”) appeals against a Notice of Assessment of Surcharge and Surcharge Liability Notice Extension dated 27 November 2006 in the sum of £675,575 in relation to the period ending 09/06.  
2.	The Appellant is a Payment on Account trader making monthly payments on account of its VAT liability and rendering quarterly VAT returns.  Payment of VAT for the period 1 July 2006 to 30 September 2006 was due by 31 October 2006 but in the event the payment was made on 2 November 2006.  This being within a surcharge period, the Commissioners issued a Notice of Assessment of Surcharge calculated at 2% of the VAT balancing payment due and extended the surcharge period to 30 September 2007.  On 19 December 2006 the Appellant sought the Commissioners’ reconsideration of the default surcharge on the basis of a reasonable excuse.  On 26 January 2007 the Commissioners rejected the excuse that had been given and confirmed the assessment.  The Appellant accordingly appeals to this Tribunal.
3.	In addition to the bundle of documents produced by the parties, we heard evidence from Petra le Mahieu, a VAT Controller based at the Appellant’s offices in Lund, Sweden from where the UK VAT returns were handled.  
The Facts
4.	The Appellant is a global provider of mobile multimedia devices, including mobile phones and accessories, and PC cards.  The company was established in 2001 by the telecommunications company, Ericsson, and the electronics company, Sony Corporation.  The Appellant is equally owned by Ericsson and Sony and launched its first joint products in March 2002. 
5.	The Appellant is registered for VAT in 16 countries worldwide.  It employs a team of six people (with one manager) to render VAT returns and due payments for these countries.  
6.	Mrs le Mahieu had been in her post as VAT Controller with the Appellant since February 2006.  She has a degree in Economics and has accounting experience from within the Accounts Receivable section of Sony Ericsson Finance and with other employers.  In October 2006 Mrs le Mahieu was the sole member of the Appellant’s VAT team responsible for both the Austrian and UK VAT returns.  
7.	On 12 October 2006 the Appellant’s representatives in Vienna, Ernst & Young, were notified that the Austrian tax authorities were to carry out a tax audit of the Appellant.  The audit was to cover the period 1 January 2005 to 31 August 2006.  The audit was to carry out checks on the validity of the Appellant’s Austrian VAT returns covering the audit period.  Ernst & Young, Vienna, notified the Appellant’s VAT team (including Mrs le Mahieu) of this fact by a letter dated 13 October 2006 and evidently e-mailed to the Appellant on 17 October 2006.  The letter indicated that the Appellant would have to present the following information to the Austrian auditor:
•	Copies of the monthly VAT returns 1-12/2005 and 1-8/2006
•	Copies of the EC Sales Lists 1-12/2005 and 1-8/2006
•	Details for these periods on a monthly basis of the following:
o	Taxable supplies
o	Intra-community supplies
o	Intra-community acquisitions
o	Input VAT
o	EC Sales Lists
•	Book proof for intra-community supplies.
8.	The letter indicated that a first meeting with the Austrian tax auditor had been arranged for 14 November 2006.  Mrs le Mahieu said that the date for examination of documents for the audit is fixed by the auditor with little flexibility.  The Ernst & Young letter stated that the meeting date would not be extended beyond 14 November because the auditor had originally sought a meeting on 30 October 2006 but had agreed to reschedule the date to 14 November 2006.  According to the Ernst & Young letter, under Austrian VAT Law the book proof for intra-community supplies had to be presented as a whole to the auditor at the start of the tax audit.
9.	This was the second Austrian audit that the Appellant had experienced since the commencement of trading activities in October 2001.  The Austrian tax authorities require VAT registered traders in intra-Community supplies to keep a schedule of all such supplies.  This is known as the “book proof”; transactions are listed on a monthly basis, showing details such as dates, invoice numbers, customers and values.  It forms part of the standard bookkeeping requirements for exporters and intra-Community traders registered for VAT in Austria.  
10.	The Ernst & Young letter noted that book proof of intra-community supplies had been the central issue of the previous VAT audit leading to an additional VAT assessment because the tax auditor had not been satisfied with the quality of the book proof provided.  This was presumably why a follow up audit was being undertaken.  Ernst & Young emphasised that the quality of book proof was extremely important to the current VAT audit and would affect the positive handling by the tax authorities of appeals against VAT assessments for 2001 to 2005.
11.	Book proof requires details of the intra-community supplies, the corresponding invoices and the freight documents.  The Ernst & Young letter explained what the auditor would accept as book proof following the previous audit.  The list of intra-community supplies was to include the invoice number and a number which would appear on the corresponding transport document for each intra-community supply.  The freight documents had to be identifiable by the number on the list.  
12.	It appears from the Ernst & Young letter that the Appellant may not have made the necessary changes to implement these requirements, which had previously been discussed with the Graz-Stadt tax office.  Mrs le Mahieu was asked about this but said she did not know what (if anything) had been done to improve systems since the first audit.  Whatever the position, however, Ernst & Young asked to be supplied with lists of intra-community supplies incorporating these details.  Their letter also indicated that it had been agreed with the tax office that it would be sufficient to provide monthly transport confirmations from the forwarding agents in a specified form rather than presenting the freight documents.  Ernst & Young requested that all the missing documentation (i.e. the lists of intra-community supplies including the details described above and the monthly transport confirmations) should be provided by 3 November 2006.  
13.	Mrs le Mahieu said that, for reasons of cost and efficiency, the Appellant’s shipping requirements are outsourced to a number of third party freight forwarders.  During the audit period at least three freight forwarders were involved in shipments through Austria for the Appellant.  As a result of the requirement for shipping documents, Mrs le Mahieu had to identify 6,087 intra-Community transactions and to retrieve additional information from the company’s SAP system so that the freight forwarders could obtain the requisite shipping document numbers.  The Austrian tax authorities also required copy VAT returns, schedules of the types of transactions by month and all the sales invoices issued with the Austrian VAT registration number.  Mrs le Mahieu estimated that for the entire audit she marshalled approximately 9,000 items of information.  
14.	Mrs le Mahieu was able to extract the majority of the information from Excel worksheets but not all of the required data was recorded electronically.  She therefore had to go through records manually to fill in the missing data.  She said that she did not know why all the information was not available in electronic format.  She was not a systems expert.  The information had to be collated with the shipping numbers supplied by the freight forwarders.  She said that she had worked night and day to ensure that the shipping numbers were in the right place.  The information then had to be supplied to the freight forwarders for them to check.  Given the deadline for getting the information to Ernst & Young, she had to finish the task by the end of October to allow the freight forwarders time to do this.
15.	Mrs le Mahieu said that her priority had to be the Austrian audit given the size of the penalty that the Appellant could suffer.  Failure to comply with the audit requirements could have resulted in a liability to the tax authorities of €188 million (based on €940 million of net intra-Community sales).  This is the VAT that would have been assessed if the Appellant had failed to satisfy the auditor with shipping evidence for all intra-Community sales from Austria during the whole registration period.  
16.	The extraordinary work coincided with the time that Mrs le Mahieu would usually have prepared the Appellant’s quarterly UK VAT return: on this occasion for the period ending 09/06.  The Appellant pays VAT on account and the balancing payment was due by 31 October 2006.  To prepare the UK VAT return both purchase and sales invoices are checked for accuracy to make sure that the VAT has been handled correctly.  The VAT team checks transactions each month and in the third month a quarterly report is filed.  The total process for a quarterly return takes about three weeks.  When the return has been put together it has to be checked and approved by the responsible manager, before being signed by the Financial Director.  The transfer of the VAT payment then takes one bank day.  
17.	On this occasion, however, by 31 October the VAT figures still had to be finalised, checked and the return signed by the Financial Director.  Indeed, events had so caught up on her that Mrs le Mahieu was initially unable to locate the VAT return form for the quarter.  She e-mailed the Respondents at 12.24 on 31 October 2006 asking if the form could be faxed or scanned and e-mailed to her so that she could send the papers that day.  In reply to Mr Barnes’ question she said that her e-mail was intended to indicate that she was about to prepare the return and not that literally she had it in hand to be sent.  The Respondents replied saying that another return would take a few days but advised her to input the details on a headed letter that could be keyed as the VAT return.  In the event, she found a blank VAT return but in the circumstances it was impossible to complete the process of getting the figures checked and the return signed by the Financial Director for it to be submitted in time.  The Financial Director signed the return on 1 November 2006.  Matters had been so rushed and Mrs le Mahieu had been under such stress that in the event the figures on the return contained an error that was later resolved by voluntary disclosure.  
18.	Mrs le Mahieu said that to have paid the tax on 31 October 2006 would have required instructions to be given before 11.00 a.m. that day.  Usually the process would start the day before, i.e. on 30 October 2006.  In response to Mr Barnes’ question she said that although she realised on 31 October that the return was due she had taken no steps to pay as quickly as possible because it was impossible to arrange if the instruction had not been given to the payment group before 11.00 a.m.  She had not started the payment process on the 30 October because she had not realised until 31 October that the return was due.  In the event payment was made on 2 November 2006.  
19.	Mrs le Mahieu said that the Austrian tax audit was unforeseeable by her and, so far as she was aware, once it had been notified the date could not be changed.  If it had not been for the unexpected tax audit, Mrs le Mahieu would have had enough time to prepare the return and to have had the figures checked.  She said that she had had no trouble doing so in the past.  She had submitted two previous VAT returns without problem.  It usually took her between 5 to 7 days to extract all the figures from the Excel work sheets.  In some months there were more queries than others.  In this case she had done the work for the first and second months and had started but not completed the work for the third month by the time she realised on 31 October that it was due.  She had started to work on it when she sent the e-mail to the Respondents about the missing return form and had spent the day completing what she needed to do.  It still, however, had to be checked and passed to the Financial Director for signing.
20.	Mrs le Mahieu said that she was not responsible for the VAT return for 09/05 or that for 12/05.  In the case of the period 09/05 tax had been paid on 2 November 2005 instead of 31 October 2005.  The balancing payment for 09/05 was left to the payment group at Sony Ericsson for payment on 28 October 2005.  This payment was missed by the person responsible for the payments and as a result was not paid on time.  The surcharge liability period had been extended in period 12/05 because the return was delivered a day late even though the tax had been paid on time.  She said that the Appellant’s records showed that the VAT return 12/05 was given to couriers on 30 January 2006 to be delivered the next day.  However, it was only delivered on 1 February 2006, one day late.  Having checked with the couriers, they had explained that all post sent within Europe should reach the recipient the next day, but that this can never be guaranteed.  According to the Appellant’s request for reconsideration of 19 December 2006 the VAT return had been made available to the couriers on 30 January 2006 but had only been collected on 31 January.  For whatever reason, however, the VAT return for 12/05 was late and the surcharge liability period was extended.  
21.	In response to Mr Barnes’ questions, Mrs le Mahieu said that she was not aware of any changes in the procedures for dealing with the VAT returns following the errors that had occurred in the 09/05 and 12/05 periods.  They were simple mistakes and in her view there was no change in the procedures because none was needed.  It was not to be expected that the mistakes would be repeated.  She said that she was aware that there could be a penalty for failure to submit the return and pay the tax on time but she did not know the exact amount or percentage and it was not something that she had in mind.  No one had told her of the possibility of a penalty and there were no specific departmental instructions regarding penalties in relation to UK VAT returns.  The Appellant had no specific system to protect itself from the possibility of incurring substantial penalties.
22.	She said that her sole focus once the Appellant had received the Ernst & Young letter was to assemble the information needed for the Austrian audit.  It did not occur to her to approach her manager to say that she had could not cope with both the demands of the Austrian audit and the requirement to submit the UK VAT return in time.  She was the only person at the time working on the Austrian audit.  It had taken her up to the deadline to complete.  In its request for reconsideration of 19 December 2006 the Appellant stated that as soon as it realised the extra burden the Austrian audit was placing on Mrs le Mahieu additional resources to help her had been found.  Mrs le Mahieu said that additional assistance was available by the audit due date.  The Appellant’s letter indicated that it had been impossible, despite its best efforts, to identify additional resources to help with the preparation of the UK VAT return figures and cover for Mrs le Mahieu at short notice.  She said that there were others in the VAT team who could have dealt with the UK VAT return if asked but it was not something that they could do in a day.  There was no system to remind her that the UK return and payment was due.  It was her responsibility to put in place any necessary reminders but she could not recall whether, for example, she had made a diary note of it.  
The parties’ submissions
23.	At the outset Mr Tack for the Appellant alluded to a possible argument based on the interaction of sections 59 and 59A of the Value Added Tax Act 1994 to suggest that the failure to deliver the return for 12/05 in time when the tax had been paid was insufficient to extend the surcharge liability period.  Following objections by Mr Barnes for the Respondents Mr Tack did not pursue this argument.
24.	Mr Tack also sought to produce information on the penalty regime in place in Sweden for late VAT returns and payments.  Mr Barnes objected to its production as offering no meaningful evidence of any relevance, with which we agreed.  We have therefore ignored the material.
25.	Mr Tack started by drawing our attention to the Respondents’ guidance on the default surcharge.  Paragraph 4.3 of the guidance says that the Respondents will take into account whether the taxpayer could have foreseen the circumstances that led to the delay in submitting its return and/or payment and, if so, what steps were taken to make alternative arrangements.  The Respondents’ internal guidance on the subject says that in order to establish reasonable excuse, the trader must produce evidence to show that his circumstances fell outside the normal hazard of trade, or that there was some element of inescapable or unforeseeable misfortune.  The question posed is, “was the trader faced with a difficulty which could not have been anticipated and that a person acting in a reasonable manner could not have overcome?”
26.	Mr Tack said that the present case was not the result of a systems problem but an unforeseen problem in the shape of the Austrian tax audit and the deadline it imposed.  As a result Mrs le Mahieu had more than she could deal with in the available time.  Mr Tack submitted that there was a reasonable excuse for the Appellant’s failure and he referred us to Auto-Factors Limited (VAT Tribunal Decision No 3055) and Carmichael Jennifer May Limited (VAT Tribunal Decision No 3159) as authority for the proposition that the demands of a tax authority impacting on a trader’s ability to make its returns has been recognised as a reasonable excuse for delay.
27.	Mr Tack also relied, however, upon the requirement of proportionality in a European context.  In its request for reconsideration of 19 December 2006 the Appellant had stated that it believed the imposition of a penalty of £675,575 for a default on the balancing payment was a disproportionate response to the two-day loss of revenue suffered by the Respondents.  Mr Tack accepted that the default surcharge regime was not disproportionate as such but he said that the requirement for the penalty to be proportionate should nevertheless be taken into account.  
28.	He referred us to Greengate Furniture Ltd v Commissioners of Customs and Excise [2003] V & DR 178.  He drew our attention to the fact that the taxpayer in that case had not established a reasonable excuse for any of the defaults but had made considerable efforts to comply with its obligations.  The taxpayer had complained that the surcharges were excessive and should be set at a more reasonable level.  The Tribunal had considered that if it did have power to mitigate, a reduction in the surcharges would be appropriate.  
29.	Mr Tack took us through the respective arguments presented for the Respondents in Greengate Furniture and by Counsel appointed as advocate to the Tribunal and the Tribunal’s conclusions.  He said that the “gravity” of the default was an important aspect of this appeal.  It was part and parcel of the reasonable excuse.  The Appellant had a reasonable excuse on the facts but also having regard to the “gravity” of the default involved.  While the Tribunal had concluded that the surcharge in Greengate Furniture was not disproportionate, the sting was in the tail of the Tribunal’s decision (at paragraph 113) when it had indicated that a surcharge could fail the test posed by Simon Brown LJ in International Transport Roth GmbH v Home Secretary [2002] 3 WLR 344 at paragraph 26: “Is the scheme not merely harsh but plainly unfair so that, however effectively that unfairness may assist in achieving the social goal, it simply cannot be permitted?”  In the Appellant’s case the penalty was too harsh having regard to the nature of the default and the circumstances in which it had occurred.  
30.	Mr Barnes for the Respondents said that there were two factual questions to be answered: what had happened and why had it happened?  As regards the first of these, Mr Barnes said that what had happened was that Mrs le Mahieu had occupied herself entirely with what she had been asked to provide for the Austrian tax audit.  Ernst & Young had set a deadline of 3 November 2006 but it was not a case that the work for the Austrian tax audit had to be finished first.  There was no real evidence of the pressure that it was claimed the Austrian audit created.  Mrs le Mahieu had worked on the Austrian information up to the 3 November deadline but had taken time out to deal with the UK tax return.  The fact was that she had forgotten until 31 October 2006 that the UK VAT return was due.  Her evidence was explicit that she had not realised on 30 October that she needed to deal with the UK return and payment.
31.	As to why this had happened, Mr Barnes said that there had been two previous defaults, in 09/05 and 12.05, and none of the Appellant’s systems had changed to allow for the possibility of future errors.  The person in charge of the VAT team had not received a ‘yellow card’ for those failures.  There was no system for warning members of the team that a time limit was approaching.  There was no staff cover in the event of eventualities, such a sickness.  This third failure was therefore an accident waiting to happen.  The Appellant was on notice of penalties if there was a further default and the VAT team knew that the usual consequence of a default was likely to be a penalty.  The only conclusion that could be drawn from the evidence was that the Appellant had been reckless in relation to the risk of penalties.  At the very least there should have been a diary entry warning of the approaching return date so that it was not left until the last day by which time it was too late to finalise the return or arrange payment.
32.	Mr Barnes referred us to section 71(1)(b) of the VAT Act 1994.  This provides that where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.  He noted that in Profile Security Services v Commissioners of Customs and Excise [1996] STC 808, Mr Justice Macpherson said (at 811-2)—
“Furthermore, I am unable to accept that reliance upon a trusted employee, to whom the relevant tasks were delegated, cannot bring the case within the words ‘any other person’ in the meaning of [s 71(1)(b)]. The words, in my judgment, bear their ordinary, wide meaning.  Reliance upon ‘any other person’ does not restrict that reliance to outside advisers. It would, in my judgment, be just as if not more desirable to exclude reliance upon a person in a position such as Mr Nair as it would be to exclude reliance upon an outside accountant who would delay in similar circumstances.  The company should have more control over its own servant than over an outsider.”
33.	Mr Barnes referred to the parts of the Greengate Furniture decision that explained why the penalty system was needed and noted that the Tribunal in that case had concluded that it was a proportionate system.  He said that the system had clear elements of proportionality: it allows a failure to be justified by a reasonable excuse; the penalty depends upon the number of failures and it is geared to the VAT due but unpaid, a feature of the gravity of the default (see paragraph 71 of the decision).  The default was 2% of the balancing payment due from the Appellant as it would be 2% in the case of any trader on the second default.  Mr Barnes said that the Appellant was suggesting that the lesser the offence the less the excuse needed.  But, he said, the Appellant was a large multinational company.  It should have the staff and systems to deal with the type of problems that had arisen in this case.  The fact they did not was a significant failing that they could not justify by reference to the Austrian audit.  
34.	In reply Mr Tack criticised Mr Barnes’ submissions as suggesting that the Austrian tax audit had little relevance to the default and making it sound as if the Appellant had chosen to pay the UK penalty rather than risk an Austrian penalty.  Mr Tack said that Mrs le Mahieu had given an honest account of the impact of the Austrian tax audit and the pressure to which she had been subject to get the work done.  The two events had occurred at the same time and in order of priority she had to deal with the Austrian tax audit first.  He said that the previous defaults had arisen for different reasons.  In particular, the late payment in 09/05 was a failing of the payment group.  It was therefore wrong to criticise the Appellant for failing to change their systems because they were different errors.  Any change would not necessarily have addressed the situation that had arisen with the Austrian VAT audit.  It was that unforeseen event that had disrupted the Appellant’s systems that had coped previously.
Our decision
35.	In our view Mr Barnes’ assessment of the situation is basically correct.  We accept that the Austrian tax audit was not foreseen by Mrs le Mahieu and may have been unforeseeable, at least in materialising so soon after a first audit.  We accept that the need to deal with the Austrian audit placed Mrs le Mahieu under enormous pressure.  Nevertheless, once the audit had been notified Mrs le Mahieu should have realised, if not immediately at least once it became apparent that the tax audit work would be so time consuming, that she had two things to complete by the end of October, one of them being the UK VAT return and payment.  
36.	It is quite understandable that having become embroiled in the Austrian tax audit work, other matters may have gone out of her mind.  The fact is, however, that she was able to complete the UK tax return and payment before the deadline set by Ernst & Young for the return of the Austrian tax audit information.  The only problem was that Mrs le Mahieu only remembered the UK VAT return on 31 October 2006.  There is nothing to suggest that if she had remembered on 30 October 2006 or earlier the return and payment could not have been made in time.  It was not the case that she remembered in time but the exigencies of the Austrian work made it impossible for her to deal with the UK return.  Even if that had been the case, it would have been incumbent on her to make this known to her manager and see what assistance other members of the team could provide.  It is precisely because time limits can be overlooked if other urgent matters arise that we would have expected the VAT team to have in place a system of reminders to avoid precisely the situation that has arisen here, especially when the one team has to deal with the Appellant’s VAT affairs in up to 16 countries.  
37.	On the issue of proportionality, it does not seem to us that the penalty in this case is any more disproportionate than in any other case.  The penalty is large in absolute terms but that reflects the value of the Appellant’s supplies and the amount of tax that had not been paid by the due date.  In Greengate Furniture the Tribunal put the case for a power to mitigate the penalty as follows:
“96 It is clear that a system of penalties is necessary to ensure compliance and that, given that some 12 to 14 per cent of the 1.7 million registered traders still default in any one year, a system of surcharges is necessary based on the automatic assessment of penalties in given fact situations. A tax based penalty in which the percentage depends on the number of defaults is a logical system which takes account of two important aspects of the gravity of the infringement – the amount of tax involved and the compliance record of the trader.
97 The fact remains however that it is a blunt instrument which only takes limited account of the blameworthiness of the trader. If the trader cannot establish a reasonable excuse, the legislation takes no account of the difference between the trader who has made genuine efforts to comply albeit without success and the trader who has made very little effort and it takes no account whatever of the extent of lateness. Either the trader is on time or he is not; either he exercises due diligence or he does not. No account is taken of the degree of culpability. Indeed a trader may properly and reasonably rely on another to prepare his return and yet be liable for the dilatoriness of that other person; a defaulting trader is often criticised before the Tribunal for failing to obtain the necessary help when under pressure.
98. In our opinion any lack of proportionality caused by those aspects of the regime would be met if there was a proper power to mitigate exercisable by the Tribunal. Any such power would be on a case by case basis although in order to promote consistency it would be necessary for the Tribunal and the Commissioners to develop guidelines.”
38.	The Tribunal then went on to consider whether in European terms the absence of a power to mitigate is “strictly necessary” and whether the exclusion of mitigation goes “further than is necessary in order to attain [the] objective”.  At paragraph 110 of its decision, the Tribunal concluded that the justifications for the absence of a power to mitigate seemed less than convincing.  It did not seem to the Tribunal that the absence of a power to mitigate was strictly necessary and without such a power the regime arguably went further than is necessary.  Nevertheless, the Tribunal noted that its judgment on these issues was not conclusive.  The legislature had a wide margin of appreciation in arriving at the appropriate balance between the general interest of the community and individual rights.  As it was unable to conclude that the system was “devoid of reasonable foundation” or “not merely harsh but plainly unfair”  the Tribunal had dismissed the taxpayer’s appeal.
39.	It seems to us that the same result must follow in this case.  The Appellant’s position does not seem to us to be as meritorious as the taxpayer’s in Greengate Furniture.  In that case the taxpayer was unable to establish a reasonable excuse because it was unable to point to any particular event or events beyond normal business hazards, which had deprived it of its ability to pay the VAT on time.  It had made considerable efforts to overcome its financial difficulties and comply but its financial problems were not allowed as a reasonable excuse.  In the present case the Austrian tax audit might be considered a particular event that was beyond the normal business hazards but we do not accept that the Appellant has a reasonable excuse because, in effect, we accept the Respondents’ view that the Appellant was at fault in failing to deal adequately with that event.  Having so concluded the penalty is in the circumstances 2% of the relevant tax, whether the trader be small or, in this case, large and irrespective of how late payment is made.  If that is disproportionate in the Appellant’s case it must equally be so in many other cases but as the Tribunal concluded in Greengate Furniture, it is impossible to conclude that those features result in the system being devoid of reasonable foundation or plainly unfair because no mitigation is allowed.  Accordingly, we do not believe that the European concept of proportionality assists the Appellant where it has otherwise failed to satisfy us that it has a reasonable excuse for its default.
40.	In the result, we dismiss the appeal.  

                                         MALCOLM GAMMIE   
CHAIRMAN
RELEASE DATE: 21 December 2007

LON/07/0372