Commentary

V3.407A Involvement in fraudulent transactions

Part V3 Supplies, acquisitions and imports

V3.407A Involvement in fraudulent transactions

V3.407A Involvement in fraudulent transactions

The suggestion that tax avoidance measures do not amount to a business activity (see V3.407), was considered in the context of fraud in the cases of Optigen Ltd and Fulcrum Electronics Ltd1. These cases followed the earlier case of Bond House2, where the appellant was the unwitting participant in a carousel fraud (a form of missing trader fraud). The tribunal held in Bond House that the appellant was not entitled to input tax recovery on the purchase of CPUs since the purpose of the transactions as a whole was to facilitate fraud, which did not amount to a business activity. The facts in Optigen and Fulcrum were similar, and the tribunal reached the same decision. The High Court, however, referred the cases to the ECJ3, posing the following questions—

  1.  

    (A)     Under the common system of VAT, and in the light of Council Directives 67/227/EEC and 77/388/EEC4, is the entitlement of a trader to credit for a payment in respect of VAT under a transaction to be judged by reference to—

  2.  
    1.  

      (1)     only the particular transaction to which the trader was a party including the trader's purposes in entering into it, or

    2.  

      (2)     the totality of transactions, including subsequent transactions, making up a circular chain of supply of which the particular transaction forms part including the purposes of other participants in the chain of which the trader has no knowledge and/or means of knowledge, and/or

    3.  

      (3)     the fraudulent acts and intention, whether arising prior or

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