Aria PC has lost its appeal against a previous legal ruling that the reseller took part in a VAT carousel fraud to the tune of £750k – though its MD insists the firm will appeal the ruling again.
Mr Justice Roth and Tribunal Judge Richards, sitting in the Upper Tribunal’s Tax and Chancery chamber, threw out Aria Technology Ltd’s (ATL’s) attempt to appeal in late October.
ATL trades as Aria PC. The company is a retail and wholesale reseller of PCs and PC components, including CPUs and monitors. Its sole director and shareholder is Aria Taheri and the company is said to employ around 120 people.
Back in 2006, ATL struck a number of wholesale deals that included Intel CPUs and TFT monitors. Those deals were struck with small suppliers and new businesses that ATL had not dealt with before. These deals caught HMRC’s attention because the taxman suspected they were part of a VAT carousel fraud scheme, which is where goods are repeatedly resold between traders with one reclaiming VAT from HMRC that had not been correctly paid.
Open justice FTW! El Reg fought the law – and El Reg wonREAD MORE
ATL’s sole director, Aria Taheri, tried and spectacularly failed to stop The Register from reporting about the case in advance of its hearing in June this year. Happily for the rest of us, Taheri’s attempt to halt pre-trial reporting of his company’s case led to the law being changed in favour of open justice.
“Aria accepted in its appeal before the FTT that there was a tax loss to HMRC which resulted from fraudulent evasion of VAT, and that its transactions were connected with that fraudulent evasion,” said Mr Justice Roth in his judgment, published yesterday.
“However,” continued the judge, “[ATL] contended that it did not know nor should it have known that its transactions were so connected.”
Barrister Michael Firth, on behalf of ATL, made 36 specific criticisms of the First-Tier Tribunal’s detailed ruling that the company knew, or ought to have known, that its transactions were connected to VAT fraud. Almost all of them were dismissed on appeal by the Upper Tribunal (UT), which broadly criticised each of Firth’s points as having been made in isolation, instead of the context of the full 300+ paragraphs of the judgment.
Although Aria Taheri himself had argued he did not know about the carousel part of MTIC fraud, where goods repeatedly leave and enter the UK, the Upper Tribunal ruled that the company as a whole ought to have known what was going on – and not just its sole director.
Letters had been sent to ATL telling it what to watch out for and what sort of due diligence checks HMRC expected to see, and the FTT had described Aria’s due diligence as “woefully inadequate”. While Taheri himself produced an internal “due diligence checklist”, he did not produce any completed checklists for the deals that HMRC was querying.
“Mr Taheri was also cross-examined about how his company was suddenly purchasing these large quantities of goods from Supreme (from whom Aria had only made much smaller purchases) and from Ashtec (from whom Aria had never previously purchased) and selling them to three customers (Mona, Mitz and Silver Pound) with whom it had had no prior contact. Moreover, it was specifically put to Mr Taheri that in all the circumstances deals 1 and 2 were ‘too good to be true’ although he did not accept that,” noted the UT, which added:
“We consider that the FTT was entitled to regard the fact that Aria’s managing director was not able to give a clear answer to questions as fundamental as when Aria expected to be paid in these very substantial transactions, in particular when it was dependent on such payment in order to pay its suppliers, as an indicator that the disputed transactions were lacking in commerciality.”
The fact those transactions lacked in commerciality was just another strong pointer that they were connected to VAT fraud, according to the UT judges.
Lost? Pah! We’re taking it higher, fumes Aria
The Register asked Aria Taheri, on behalf of his company, whether he wanted to comment on the UT’s judgment. He sent us a statement asserting that “both of the suppliers that ATL bought the goods from were fully audited by HMRC”, that the FTT’s finding that Aria PC’s due diligence was insufficient and the UT’s upholding of that finding was “wrong”, and stated that ATL “has not received a penny out of the incurring fraud”.
Taheri told us: “The computer industry has been plagued with this type of fraud for many years affecting many small and big businesses and to punish honest businesses as a result of lax controls in HMRC dishing out VAT numbers at the time is unfair and unjust.”
He added that ATL intended taking the case up the legal chain to the Court of Appeal. ®