The Advocate General (AG) has issued his opinion in favour of the tax payer in the combined cases of Optigen Ltd, Fulcrum Electronics Ltd, and Bond House systems Ltd. In each of the cases the taxpayers appealed because they were not permitted to recover VAT charged to them on goods they had bought because the transactions undertaken formed part of a ‘carousel’ fraud, where somewhere along the supply chain there has been a fraudulent dealer, even though they were not aware of this.

The AG rejected the idea that fraud at some point in a transaction chain “tainted” the whole series of transactions and meant that they were not subject to the VAT system.  In his view, each transaction should be considered on its own merits, rather than an assessment of the purpose and results of the entire chain.  He was also critical of what he saw as an attempt to shift the burden of tackling the frauds away from the tax authorities to the private sector, at the expense of legitimate trade and the proper functioning of the VAT system.

Kendra Hann, indirect tax partner at Deloitte, says: “Carousel fraud is particularly prevalent in the telecoms industry where there are often thousands of suppliers and goods traded are of a high value. However, any businesses which engage in transactions with suppliers, some of whom could potentially be inadvertently involved in fraudulent supply chains, should be interested in the outcome of this case.

“The AG's opinion, if upheld by the European Court of Justice, is welcome news for legitimate business as it gives certainty over the VAT treatment of a transaction at the time it is made.”

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.