Supplies that are illegal

Produced by Tolley
Supplies that are illegal

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Supplies that are illegal
  • Background
  • Specific transactions
  • Non-existent goods
  • Fraudulent goods
  • Stolen credit cards

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of the VAT treatment of supplies that are illegal.


Firstly it is important to note that making illegal supplies is not automatically outside the scope of VAT. This concept was clarified in the CJEU case Oliver.

In this case a second-hand car dealer sold a number of stolen cars at auction. The trader did not account for VAT on the sales, and HMRC issued an assessment to recover output tax on the amounts received. The business appealed, contending that there had been no supply since it did not legally own the cars. The Court rejected this contention and upheld the assessment. The fact that the business had no legal title to the cars did not alter the fact that it had supplied them from a VAT perspective.

Griffiths J defined supply as:

“the passing of possession in goods pursuant to an agreement where under the supplier agrees to part and the recipient agrees to take possession”

This was further clarified in the Witzemann case.

The CJEU has stated that such supplies will only fall outside the scope of VAT if the concept of fiscal neutrality is not compromised and the leading case is Witzemann. The CJEU ruled that in finding that the supply of counterfeit money fell outside the scope of Article 2(1) of the Sixth VAT Directive (now Article 2(1) of the Principal VAT Directive 2006/112/EC) the Advocate General stated:

“Illegality manifests itself in many forms and there are many products that either cannot be lawfully traded or trade

Popular documents