Companies unwittingly ensnared in VAT fraud schemes can reclaim frozen VAT refunds thanks to a judgement by the European Court of Justice.
The court today issued its judgement on Bond House Systems’ appeal, along with two other firms, against HM Revenue & Customs' rulings, under which their VAT rebates were frozen when they became unwitting victims of carousel frauds.
In such frauds, scammers import VAT-free goods from another EC country, sell them on with VAT added and then disappear before paying Customs the VAT. In some schemes – dubbed carousel frauds – goods are circulated repeatedly round a number of scammers
The court ruled that a company's deduction of VAT, “cannot be affected by the fact that in the chain of supply of which those transactions form part, without that taxable person knowing or having any means of knowing, another prior or subsequent transaction is vitiated by VAT fraud.”
Bond House was effectively forced to cease trading after losing a 2003 appeal against a tribunal decision on HMRC’s decision to withheld £13m of rebates. Many other companies – many in electronics distribution – were hit by such frauds, with customs withholding £210m in rebates in 2003-2004 alone.®