TriCell LTD (fka TCLL)

[trailorparkboy]

Traders gear up for class action against Customs
The European Court of Justice ruling on the Bond House case undermined Customs´ argument that all transactions which form part of a carousel fraud are not "economic activities" and should be penalised by withholding VAT due to honest traders in the supply chain. The decision implies that Customs´ treatment of innocent traders was contrary to EU law.
As Customs has no jurisdiction to award damages which would be expected under EU law it will be necessary to bring an action in the High Court.
As we anticipate a large number of claims an application for a Group Litigation Order (GLO) was made in the High Court on May 4. London law firm DLA Piper Rudnick Gray Cary UK LLP were appointed lead solicitors by the High Court in what will become known as the "Missing Trader Intra Community Damages Group Litigation".
The litigation will essentially become a class action pursued by a test claimant on behalf of the rest of the group. All claimants who issue relevant claims will be included within the GLO and will share in its costs.
The decisive issue is whether Customs manifestly and gravely disregarded the limits on its discretion.
All the indications are that the interpretation was adopted by Customs in order to deal with a problem faced by the UK Treasury. No one doubts the seriousness of that problem. There is however real doubt as to whether a deliberate attempt to pass that problem on to wholly innocent traders can be justified.
A key factor is likely to be the extent to which Customs was entitled to rely on the original decisions of VAT Tribunals in enforcing its "non-economic activity" approach.
There was already significant doubt as to the correctness of that decision particularly after the release of the opinion of EU advocate general Miguel Poiares Maduro in February 2005. It was also known that this approach was causing significant damage to the industry.
Against this Customs will argue that it acted in reliance on a judicial decision and that there was a significant loss to the UK Exchequer caused by missing trader fraud.
It may also argue that its position is supported by the fact that the High Court which made the reference to the European Court did not regard the matter as acte claire´ or so obvious as to be without dispute.
But the mere fact that the national authority wrongly persuades the national court to accept its interpretation does not justify it.
Customs will also point to an apparent qualification contained in the European judgment that says the right to deduct input tax is not affected by the existence of a fraud unless the claimant knew or had "any means of knowing" about the fraud. As a result less-than-perfect due diligence by a trade may be used to justify an adverse assessment.
It is a rare thing for a national court to award damages against a revenue-collecting authority for losses arising as a result of tax administration. However the legal basis of the action Customs took against innocent traders was widely criticised at the time and was very likely to cause commercial losses.
The GLO is likely to incorporate a provision requiring claims to be made within a certain time likely to be six months from finalisation of the relevant issues to be included so proceedings need be issued as soon as possible.