The First-tier Tribunal (FTT) upheld a series of appeals against HMRC decisions relating to non-payment of VAT, excise duty, and associated penalties, including personal liability notices (PLNs) and a director’s liability notice (DLN), in Sintra Global Inc and Parul Malde v HMRC  UKFTT 00365 (TC), and criticised HMRC’s evidence and investigation.
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History between Sintra Global Inc, Paruk Malde and HMRC
Sintra Global Inc. (Global), and Parul Malde, appealed HMRC’s decisions regarding the failure to pay VAT, excise duty, and related penalties, including PLNs and a DLN. HMRC claimed that these decisions resulted from the fraudulent importation of alcohol into the UK from the European Union and subsequent sale of that alcohol in the UK by Global and a business that was incorporated in Belize, Sintra SA. HMRC claimed both companies were controlled by Parul Malde
HMRC had conducted investigations into inward diversion fraud involving a number of enterprises with which organisations affiliated with Mr Malde had done business. As a result of these investigations, criminal convictions for tax evasion and money laundering were obtained against a number of third parties.
How was the Fraud Committed?
The fraud committed by these other companies entailed the supply of duty-free alcohol from the United Kingdom to warehouses in Europe (principally in France). Despite being released for consumption in other European countries and duty paid at lower rates, some of the alcohol was returned to the UK while still subject to duty suspension under an Administrative Reference Code (ARC) (required for movements of suspense goods within the Excise Movement Control Scheme (EMCS)). Several consignments of alcohol (mirror loads) would be transported to the UK under the same ARC (which remained valid for a while) until the ARC expired or a consignment was caught by HMRC.
The mirror loads were often sold for cash shortly after their arrival in the UK, a practise known as slaughtering, and UK consumers created fraudulent paper trails to give the impression that the alcohol had been obtained legally.
Paruk Malde’s previous conflicts with HMRC
HMRC issued a series of assessments and accompanying Personal Penalty Notices of up to £25 million against Mr Malde in 2015. This was in relation to alcohol that was allegedly trafficked into the UK between 2004 and 2014 by two firms registered in Belize and Panama, Sintra SA and Sintra Global.
HMRC secured a freezing order against Mr Malde in the High Court in 2015 on the premise that it had ‘proven’ that a third party had moved alcohol from its UK warehouse to its warehouse in France, after which it would be sold to SA and smuggled back into the UK by SA or Corkteck Ltd. (a company associated with Mr Malde).
HMRC claimed that the appellants were involved in an inward diversion fraud involving SA. It ruled that Global was required to register for VAT during the relevant period because it ‘slaughtered’ the loads in the UK (and received significant cash payments that HMRC claimed were related to UK alcohol sales), and imposed penalties for failing to do so and handling goods subject to unpaid excise duty. In addition, it issued PLNs and DLNs to Mr Malde for these fines.
Sintra Global and Paruk Malde appealed to the FTT.
What did the FTT Conclude?
The FTT stated that HMRC bore the burden of proof in both the penalty assessments and the claims of fraud. HMRC had to establish its case on the balance of probabilities (rather than to the criminal standard of beyond reasonable doubt).
According to the FTT, SA was the owner of part of the alcohol smuggled into and supplied in the UK and thus should have been registered for VAT. However, there was no proof that Global possessed items that were supplied in the United Kingdom. Even if Global had been deliberately implicated in crime by selling alcohol in the EU to UK traders or individuals Global knew were planning to smuggle the items, this was insufficient to warrant the fines imposed by HMRC. According to the FTT, other corporate organisations held the seized alcohol and provided the alcohol sold in the UK through supply chains in which Global was involved.
The FTT determined that Global was not required to register for VAT, and thus all penalties imposed on Global and the associated DLNs and PLNs were lifted.
Based on the facts presented, the FTT decided that Mr Malde controlled SA. However, according to the FTT, HMRC in general, and Mr Foster (the main HMRC investigating officer) in particular, made a conscious decision to disregard bank statements relating to one of the firms implicated in the alleged fraud. The FTT saw this failure as a serious blunder. Counsel for the appellants stated that the failure was due to HMRC’s narrow approach to the investigation, in which they developed an opinion and overlooked information that contradicted that opinion.
Criticism for HMRC
The FTT’s finding that “had HMRC, and Mr Foster in particular, taken a less myopic approach to this case, particularly with regard to Mr Malde, we may well have reached entirely different conclusions” is a serious criticism that should have systemic implications for HMRC’s investigative practise and approach to evidence before the FTT.
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