The Commissioners for HMRC v Sintra Global, Inc & Anor

In an appeal against a tax assessment, the taxpayer normally bears the burden of showing that the assessment is wrong. That burden is not reversed merely because HMRC alleges fraud or dishonesty, unless the alleged state of mind or conduct is an essential element of the liability.

In a penalty appeal, however, Article 6(2) requires HMRC generally to prove the elements giving rise to the penalty. A reverse burden requires a justified and proportionate statutory or case-specific exception. For a Value Added Tax Act 1994 best-judgment assessment, the tribunal must apply the authoritative inquiry into whether there was an honest and genuine attempt to make a reasoned assessment. Even where that requirement is breached, it must ordinarily determine a fair amount rather than automatically set the assessment aside.

HMRC appealed against the decision of the First-tier Tribunal, [2022] UKFTT 0365 (TC), which had allowed appeals by Sintra Global Inc and Mr Parul Malde against VAT-registration, penalty and personal-liability decisions connected with alleged alcohol inward-diversion fraud.

The FTT found that HMRC had not proved that Global supplied alcohol in the United Kingdom. It also held that an assessment on Sintra SA was not made to the best of HMRC’s judgment and that the related director’s liability notice issued to Mr Malde therefore failed.

The Upper Tribunal considered the burden of proof in tax and penalty appeals, the FTT’s treatment of the evidence, the challenge to its factual conclusions, and the statutory best-judgment requirement under section 73 of the Value Added Tax Act 1994.

1. Appeal allowed in part. The Upper Tribunal dismissed HMRC’s challenges to the FTT’s allocation of the burden of proof in the penalty appeals and to its conclusion that HMRC had not proved Global made taxable supplies in the United Kingdom.

2. In ordinary tax-assessment appeals, the taxpayer bears the burden of proving that the assessment is wrong and establishing the correct tax. Allegations of fraud or dishonesty do not, by themselves, reverse that burden. The burden instead lies on HMRC where the relevant liability requires proof of a particular state of mind or conduct, or where statute so provides.

3. Penalty appeals are generally governed by the presumption of innocence in Article 6(2) ECHR. HMRC therefore had to prove the elements of the penalties against Global and Mr Malde, including the issue whether Global made taxable supplies in the United Kingdom. No justified and proportionate exception displaced that rule on these facts. The Tribunal declined to follow Zaman v HMRC [2022] UKUT 252 (TCC), which had adopted the contrary approach.

4. The FTT erred by treating the control and place-of-supply issues as wholly separate when the evidence could overlap. The error was immaterial because the FTT’s conclusion on Global rested on HMRC’s failure to prove ownership and UK supply, and its adverse view of Mr Malde’s reliability was already clear.

5. The FTT also erred regarding the assessment on SA. It treated a failure to consider material as a separate and sufficient best-judgment test, contrary to the governing guidance. It further set aside the whole assessment without asking whether the defect was so serious that justice required this, rather than correction to a fair figure.

6. The FTT decision was set aside only insofar as it concerned the director’s liability notice. The validity and quantum of SA’s underlying assessment were remitted to the FTT.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was allowed on the best-judgment and remedy grounds. The decision below was set aside only insofar as it concerned the director’s liability notice, and the underlying assessment issues were remitted.
• First-tier Tribunal (Tax Chamber): In [2022] UKFTT 0365 (TC), the FTT allowed Global’s and Mr Malde’s appeals against the relevant VAT, penalty and personal-liability decisions.