Bond House was a dealer in computer components. A significant part of its business comprised the purchasing of computer processors – CPUs – from traders registered for VAT in the UK and the selling of CPUs to traders registered for VAT in other European Union (EU) member states. Bond House’s repayment of significant amounts of input VAT was refused by HM Revenue and Customs (HMRC). Optigen and Fulcrum, similarly, were traders, mainly in computer chips. They purchased these from companies in the UK and sold them to customers located in other member states. They became innocent parties to a number of transactions comprising a carousel fraud; and HMRC declined their VAT returns.
HMRC contended that the relevant purchases and sales were ‘devoid of economic substance’. Accordingly, the purchases were not supplies used or to be used for the purposes of a business and the sales were not supplies made in the course of a business for the purposes of VAT. That approach was upheld by the VAT and duties tribunal in the Optigen Limited, Fulcrum Electronics Limited and Bond House Systems Limited cases. The tribunals held that where there is a chain of purchases and sales of particular goods around a circle of traders and one of those traders (the ‘missing trader’) disappears without accounting for acquisition VAT (which he is obliged to pay on importing goods into the UK from another EU member state), then none of the purchases and sales can be said to amount to an “economic activity”, as that phrase is used in Article 4(2) of the sixth directive.
