Glencore Agriculture Hungary v Nemzeti Ado- es Vamhivatal Fellebbviteli Igazgatosaga
For individuals and directors of businesses involved in certain types of trading, ensuring that your supply chain is free of tax evasion is important to comply with your regulatory duties. In some circumstances, an individual or business can be held liable for tax evasion committed by their suppliers. This can in turn result in serious civil and criminal penalties if proven. Members of Scarmans Solicitors include those experienced in the prosecution and defence of proceedings brought by HMRC and so are best placed to assist business and individuals in dealing with this complex area of regulatory compliance. A recent EU authority on tax compliance has assisted the position of those being investigated by in respect of decisions by HMRC about third parties.
On the 5th June 2019 in Glencore Agriculture v Budapest Administrative and Labour Court Case C-189/18 EU Advocate General Bobek delivered an opinion on the burden of proof on state tax authorities, such as the UK HMRC, when seeking to prove that an individual was involved in tax evasion perpetrated by suppliers, and the associated right to be granted access to documents relevant to the process.
The case concerned a challenge by Glencore Agriculture to decisions of the tax authorities in Hungary to deduct VAT paid on supplies on the grounds that Glencore was or should have been aware of tax evasion or fraud by its suppliers. The Budapest Administrative and Labour Court referred to the European Court of Justice three questions for a preliminary ruling. In summary, the case concerns the situation whereby the findings of an earlier investigation into a supplier (A) are taken into account by the tax authorities against those who received the supplies (B), where the receiver (B) has no right of appeal against the decision against the supplier (A), or the right to access to the documents. The EU Advocate General was asked for a preliminary opinion on whether the above practice contravened the relevant EU VAT Directive and parts of the EU Charter of Fundamental Rights.
In summary, the conclusion reach was that the practice of Member States which allows decisions against a supplier (A) to be taken into account against a recipient (B) by the tax authorities was lawful, but only if:
a.The tax authorities were not bound by the earlier decision against a non-party, and so could reach a different conclusion if presented with different evidence or arguments;
b. The tax authorities are in principle required to grant the recipient (B) access to all relevant documents before making a final decision, including those collected in related administrative or criminal procedures; a summary would not be sufficient unless the full documents can be accessed for examination; and
c. A national Court reviewing a decision by a tax authority is able to review all elements of the fact and law involved in that decision, including the lawfulness of the manner in which the evidence was collected, irrespective of the origin of such evidence.
This decision provides a strong argument for those facing civil and criminal enquiries to be given greater access to documents which formed the basis of HMRC decisions being used against them when they were not party to the original decision or proceedings. Equally, if a tax authority is seeking to rely on an earlier decision against you where you were not a party to the original proceedings, you should be given an opportunity to challenge that decision.
This should make life easier for those being investigated by HMRC where an adverse decision has been made about their suppliers. It should assist in applications to be made to a connected party to tax tribunal proceedings, and for connected parties to be able to access documents previously limited to the original parties.
Given that civil tax enquiries can quickly result in criminal charges being brought, it is essential that those facing such any such enquiries are advised and represented by lawyers with experience of both areas of law so that the most serious consequences of supplier tax evasion can be avoided.
The full judgment can be found here: