An Irishman and his female accomplice masterminded a £20 million (€25.39 million) tax fraud by dealing in computer chips, a court heard yesterday. Mr Daniel O'Connell and Ms Bernadette Devine set up a network of companies in order to pocket millions of pounds in undeclared VAT.

Over two years and six months, the duo paid a total of £32,000 to the taxman, when the true figure they owed was £20 million. The alleged fraud was based on the buying and selling of £100 million-worth of Intel Pentium Two Processer computer chips.

Middlesex Guildhall Crown Court heard that Mr O'Connell began the fraud in mid-1996, setting up five companies which bought huge quantities of the computer chips from London dealers. He created a "VAT-free source", claiming they were to be exported within the EU. In reality, they never left Britain and were sold on to Ms Devine's companies based a few miles away in Middlesex, the court heard.

He sold them on to Ms Devine at a loss but with VAT on top, which he pocketed, it is claimed. Ms Devine was then left with cut-price goods which she could sell on at a profit. The fraud continued until December 1998 when an Irish newspaper ran a front page article reporting a tax evasion scam involving computer chips. Mr O'Connell and Ms Devine then ceased trading with each other, it is claimed. But when Mr O'Connell appeared to be on the verge of resuming business in March 1999, the three defendants were arrested.

Mr O'Connell (46), of Catherine Street, Limerick, Mr Dawson (58), of Mumbles Road, Blackpill, Swansea, and Ms Devine (33), of Empire Road, Perivale, west London, each deny five counts of tax evasion and one count of cheating the public revenue.

The trial continues.