Contrivance: Contractual position: Contractual arrangements
A typical scenario in VAT fraud transactions is that no payment is made until the taxable person receives payment from his customer, yet often each taxable person will claim retention of title until full payment is received. So prior to payment by the customer it will usually be unclear who holds title to the goods, i.e. presumably whoever was the last person who actually paid for the goods, and possibly allowing them to leave the country, without receiving either payment or any guarantee of payment, or even knowing where the goods are going to. In order to ensure that there is recourse against potential problems, and also to clearly set out the role of each participant, it would be expected that there would be a contract and/or terms and conditions.
Factors to be considered are:
- When does title to the goods transfer from the supplier to the taxable person and from the taxable person to the customer?
- What payment terms are offered to the customer?
- What delivery terms are offered to the customer?
- Were goods released prior to payment?
- What assurance and/or guarantee was obtained that payment would be made?
- Who is responsible for the freight forwarder charges?
- What is the taxable person’s returns/exchange/refund policy if the goods are found to be faulty?
- What happens to any faulty goods returned?
- Have there in fact been any goods returned?
- What happens if there is a dispute between the taxable person and its supplier/customer?
- What arrangements did the taxable person have in place for recovering the goods?
The above list is not exhaustive.
If contracts or terms and conditions were in place, it will need to be determined whether the terms were adhered to by either party and, if not, what was done to correct that position. It will also need to be determined whether the actual terms made commercial sense, for example release of title, ownership etc.