A preliminary ruling issued by the European Court of Justice has recommended that HM Revenue and Customs be allowed to bring a claim for damages in Denmark over an alleged VAT fraud, using a European agreement designed for “civil and commercial” disputes.
The Danish High Court referred to the ECJ for a preliminary ruling as to whether the “Brussels I Regulation” (Article 1(1) of Regulation (EC) No 44/2001) can include an action brought by a State authority against private persons or businesses over alleged tax fraud. The Regulation is clear that it does not apply to tax matters or disputes in public law.
The case concerns an alleged conspiracy to defraud the UK of more than GBP40m in VAT revenue by a company called Sunico ApS and others. It was noted that HMRC had been given access to information in Denmark about the defendants that would not be available to a private litigant, and that the amount of damages being sought corresponded to the amount of a tax claim. However, HMRC argued that it was acting as a private person. HMRC cannot itself enforce its claim, but has to pursue it through the courts in the same way as anyone else.
The ECJ’s legal opinion, put forward by Advocate General Juliane Kokott, agreed that in related civil litigation before the High Court of Justice in London, HMRC was not acting in the exercise of its public powers: the case was being brought against third parties alleged to have been involved in the conspiracy rather than against the alleged tax debtor, and the tax claim would continue to stand even if the damages were ordered to be paid. HMRC claims to have suffered an infringement of a legally-protected right, and this “is precisely not a genuine sovereign act.” Therefore, the Brussels I Regulation does apply.
However, the litigation in London failed last autumn after the HMRC’s claim was found to have been improperly pleaded. HMRC did not make clear which of the defendants would ultimately benefit from the alleged fraud, or to what amount, and the claim was struck out.