Reseller Aria PC's managing director "must have known" that 11 disputed deals his company made a decade ago had a "connection to fraud", an HMRC barrister has told a tax tribunal.
Aria PC is accused by HMRC of playing a key part in a missing trader intra-community fraud, also known as VAT carousel fraud. In 2006 the company struck a dozen deals to sell Intel Pentium 4 CPUs and TFT monitors, reclaiming VAT on them from HMRC. Eleven of those deals were traced by the taxman to a tax loss.
HMRC alleged that Aria PC (registered at Companies House as Aria Technology Ltd, or ATL) knew these deals were part of a fraudulent chain. In 2016 the Tax and Chancery Chamber of the First-Tier Tribunal (FTT, a specialised tax court) ruled against ATL, finding that managing director Aria Taheri "knew or ought to have known" about the fraud because he oversaw each of the deals.
HMRC altered Aria's tax return, denying the firm some £750,000 in input tax and saying it owed the taxman around £300,000 in wrongly paid VAT rebates. ATL has appealed against the decision to the Upper Tribunal's Tax and Chancery Chamber. The three-day hearing took place last week.
"In period 07/06 the Appellant entered 11 wholesale transactions which lifted its quarterly turnover to the unprecedented level of £9.9m, £2m higher than the previous highest figure," barrister James Puzey, for HMRC, told the tribunal in his written submissions. "Those 11 wholesale deals accounted for 50 per cent of its turnover in 07/06 and 25 per cent of its profit."
ATL used MSN Messenger statuses, the tribunal heard, to advertise its wares to its trade contacts. A spreadsheet was used to collate offers and work out a suitable markup. In two of the deals the goods were released "without payment having been received", something for which the FTT said ATL finance man Frank Harasiwka "could provide no explanation". It also claimed that Taheri "was unaware that goods had been released to the customer prior to receiving full payment".
Both sides argued hotly over paragraphs 334-338 of the FTT's judgment (PDF, 93 pages, relevant part at page 85 onwards), which ATL had said were the killer rulings that overturned its key evidence. The FTT had ruled that "the oral evidence on behalf of [ATL] was not convincing", branding it "vague" and finding that there were "no set procedures in place for the brokerage deals" which would have allowed ATL to spot the frauds and back out of the deals.
In evidence the deals were said to have been negotiated by Harasiwka and ATL purchasing manager Eddie McFadden. While Puzey accepted, in his closing speech to judges Mr Justice Roth and Tribunal Judge Richards, that Taheri "had little or no involvement in the deals", he questioned why McFadden and Harasiwka "gave the impression of knowing little about the details of the deals while claiming responsibility for them".
"Mr Taheri never admitted he knew anything about the Intel processors, never," insisted ATL's barrister, Michael Firth, who had been directly instructed by ATL without the involvement of solicitors.
"I agree it is possible to oversee the deals without having a great deal of involvement in them," demurred the softly spoken Puzey. "But if these men aren't doing the deals, who is?" he asked, questioning the level of "groundwork" and due diligence that ATL carried out on its customers.
"These deals did not happen overnight," he continued, peering over his glasses to add: "And yet what do we have, a spreadsheet of deals put out over MSN? We would have expected to see details of individual negotiations."
Mr Justice Roth commented: "As regards the customers, it is the sort of trading where one can fairly say and infer you expect negotiation... someone got involved in the details. And Mr Taheri said it was Mr McFadden and the tribunal is saying here that Mr McFadden gave the impression in his evidence that he didn't know much about the detail."
The case has now concluded. Mr Justice Roth said: "We will obviously take some time to consider our decision." Full judgments in Upper Tribunal cases normally take months to be published. ®