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HMRC internal manual

VAT Fraud

The Kittel principle intervention: Overview: Axel Kittel & Recolta Recycling SPRL (Kittel)

In July 2006, the ECJ released its judgment in the Kittel case.


Ang Computime Belgium (Computime - which went into receivership and was represented by Mr Axel Kittel (the receiver), hence the name of the case) bought and resold computer components, submitting repayment returns. The Belgian authorities argued that Computime had knowingly participated in a ‘carousel’ fraud (VATF23500), intended to recover one or more times amounts of VAT invoiced by suppliers for the same goods, and that the supplies to Computime were fictitious.

Recolta Recycling SPRL (Recolta) purchased luxury cars. Again, it was argued by the Belgian authorities that Recolta, along with other participants within the deal chains, were part of a ‘carousel’ scheme. (It should be noted that the ECJ found that there was no evidence that Recolta ‘knew or had any suspicion’ that it was involved in such a scheme.)

Excerpts from the judgment

The ECJ, in its judgment (C-439/04 and C-440/04, issued 6 July 2006), stated:

51 … traders who take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud, be it the fraudulent evasion of VAT or other fraud, must be able to rely on the legality of those transactions without the risk of losing their right to deduct the input VAT.

54 As the Court has already observed, preventing tax evasion, avoidance and abuse is an objective recognised and encouraged by the Sixth Directive … Community law cannot be relied on for abusive or fraudulent ends ….

56 … a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, for the purposes of the Sixth Directive, be regarded as a participant in that fraud, irrespective of whether or not he profited by the resale of the goods.

57 That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.

58 In addition, such an interpretation, by making it more difficult to carry out fraudulent transactions, is apt to prevent them. 

In summary, the ECJ found:

60 … where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of Sixth Council Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void - by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller - causes that taxable person to lose the right to deduct the value added tax he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of value added tax or to other fraud.

61 By contrast, where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person entitlement to the right to deduct. 

The three ‘limbs’ that make up the Kittel principle are looked at in VATF52300.