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MPs urge govt to push EU on carousel fraud

26/07/2007

The government has been urged to ensure the EU creates new legislation to further protect Britain from VAT carousel fraud originating on the continent.

The recommendation comes from an influential committee of MPs that warns "individual member states cannot tackle VAT fraud on their own".

Carousel fraud, sometimes referred to as missing trader intra-community (MTIC) fraud, involves criminals gaining VAT registration to acquire easily transportable-goods such as computer chips and mobile phones.

The rogue traders then sell them on at prices including VAT in other European countries, but they disappear before passing on the consumer-paid VAT to the relevant tax authorities.

HMRC, which has been tackling the fraud for the last six years, says that carousel fraud cost the UK between £2 billion and £3 billion in 2005-06.

According to the EU commissioner for taxation, the bloc loses €60 billion (£40 billion) every year to MTIC fraud, despite the introduction of the 'reverse charge' measure, which saw the sixth VAT directive dropped from mobile phones and computer chips.

But the public accounts committee (PAC) says HMRC must push the EU to extend its decision beyond phones and computer chips, as "resourceful" fraudsters have simply moved on to transporting other items.

"The UK applied for and is now allowed by the EU to apply the so-called 'reverse charge' mechanism – whereby VAT is removed from the business chain as cash and therefore cannot be stolen," commented the committee's chairman Edward Leigh.

"However, it is ridiculous that this mechanism applies only to transactions involving mobile telephones and computer chips because the criminals can simply switch their attentions to others kinds of high value goods."

Mr Leigh concluded: "There has to be more coordinated working between EU member states. But nothing short of a new legislative framework in the EU for administering VAT will enable us to prevent these gangs from stealing public money on such a scale."

Commenting on the report, an HMRC spokesperson insisted the government was continuing to "work closely" with other EU states to combat carousel fraud.

"The government has acted quickly in response to this criminal activity, and has put in place a comprehensive and robust strategy for tackling MTIC fraud through a combination of legislation, litigation and operational activity.

"The government's strategy has had a significant impact – [official] statistics suggest that MTIC related trading activity has fallen by over 90 per cent since this time last year, and we are confident that this trend will be maintained."

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