Allegations made by the UK tax authority (HMRC) against investment Citibank NA that hint at fraud and dishonesty are “embarrassing”, the investment bank’s lawyer said on Tuesday, as the latest hearing in a case over a £10 million ($15.1 million) tax bill relating to the EU carbon market wrapped up.
The arguments, heard Monday and Tuesday in the Upper Appeal court in London, followed an appeal by HMRC against a ruling made by the First Tier Tribunal in Nov. 2014.
That verdict, handed down by Judge Barbara Mosedale, found that HMRC’s Statement of Case (SOC) was “seriously flawed”, in part because it was unclear whether HMRC was alleging Citibank of fraud and dishonesty.
Citibank this week continued to refute HMRC’s allegations that MTIC, or carousel, fraud had taken place, claiming that it was still unclear what HMRC was accusing it of.
Michael Conlon QC, representing Citibank, described HMRC’s initial SOC in the case – which hinted at fraud and dishonesty – as “embarrassing”, and predicted that the agency’s appeal was bound to fail.
He argued that this was a case involving a major worldwide bank and a very big derivatives trading desk, and not a “simple backroom” fraud case that would warrant a “one size fits all approach”.
A written decision is now pending from Judge Christopher Nugee, who presided over the latest hearing.
The case is centred on a tax bill sent to Citibank in Aug. 2013 by HMRC for VAT the bank had reclaimed on EUA trades made in July 2009.
HMRC maintained that Citibank knew, or ought to have known, that its transactions in these carbon credits were connected with fraud.
Jonathan Kinnear, counsel for HMRC, surmised that the transactions were part of a contrived fraud because blocks of the same carbon credits passed through the bank’s hands several times.
The key question is whether acting dishonestly, which HMRC has not yet explicitly alleged, will need to be explicitly alleged and appropriately proved in order for fraud to be found.
The case’s decision could be considered a ‘sea change’, according to Kinnear, because it may set a new legal precedent, altering the current one set nine years ago.
By Rebecca Hampson – email@example.com