Pharmaquim Ltd v Commissioners for Her Majesty's Revenue and Customs
Decision date: 11 June 2010
Neutral citation: [2010] UKFTT 279 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
Pharmaquim, a wholesale mobile‑phone broker, appealed HMRC’s refusal/assessment denying VAT input tax repayments for two periods; HMRC had traced the transactions to chains ending with missing/defaulter or hijacked traders. The tribunal found the challenged supplies were connected to fraudulent VAT losses and that Pharmaquim (through Dr Khan) knew or ought to have known of that connection given the totality of objective indicators and inadequate due diligence, and dismissed the appeal, awarding costs to HMRC.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
Where objective factors demonstrate that a supply is connected to fraudulent VAT loss elsewhere in the transaction chain, and the purchaser knew or ought to have known of that connection, the purchaser loses the right to deduct input VAT — applying the principle that knowledge of participation in fraud (actual or constructive) defeats entitlement to input tax.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The tribunal identified features indicative of contrived MTIC activity and inadequate due diligence: rapid back‑to‑back same‑day trading, identical small mark‑ups, use of freight‑forwarders with minimal control, failure to record IMEI/serial numbers, absence of written contracts, reliance on risky banks and intra‑bank transfers, repeated third‑party payment instructions, and suppliers/customers using residential or serviced addresses.