European Commission plans laws to battle carousel fraud

Carousel fraud is a massive problem across Europe, costing over £34 billion in the EU and billions of pounds a year in the UK alone. Though the UK has taken measures in recent months to battle carousel fraud, the EU and other EU countries have been slower to take action.

Carousel fraud is a variant of Missing Trader Intra-Community (MTIC) VAT fraud. In its simplest form, MTIC fraud involves obtaining a VAT registration number in, say, the UK, for the purposes of purchasing goods free from VAT in another, selling them at a VAT-inclusive purchase price in the UK and then going missing or defaulting without paying the VAT due to Her Majesty's Revenue and Customs (HMRC). Carousel fraud involves the same goods being traded around contrived supply chains within and beyond the EU, re-entering the UK on a number of occasions with the VAT being stolen each time.

The European Commission has now approved plans to speed up the exchange of information on transactions between countries. Transaction notification can take up to six months at present, and the Commission wants to slash that to between one and two months across Europe to help catch up with fraudsters.

"The measures being proposed today are the first step towards a more effective fight against VAT fraud," said László Kovács, the European Commissioner responsible for taxation and the customs union. "Their advantages are that they can be implemented very quickly and do not impose any significant administrative burdens on economic operators.”

The plan involves the creation of a new EU Directive and Regulation setting up a new system which will transmit VAT transaction information more quickly between member states.

"Buyers or customers making transactions to a value of more than €200,000 per calendar year will be obliged to submit their VAT declarations monthly," said a Commission statement. "The threshold has been set at this level to avoid imposing extra obligations on undertakings which make intra-Community acquisitions only occasionally or only for small amounts."

Carousel fraud is a major drain on the economies of EU countries. The Commission has said in the past that more is lost per year in Europe on carousel fraud than it spends on the Common Agricultural Policy (CAP). The CAP budget is £34 billion.

The House of Lords has said that in 2005/2006 the fraud cost the UK £4.5 billion. The UK has since introduced laws specifically targeted electronic goods such as MP3 players, mobile phones and computer chips.

These goods were seen as valuable instruments for the fraud because of the high monetary value and small physical size. Traders must pay VAT direct to HMRC for these goods rather than to the supplier in a system called the reverse charge.

The Commission's new proposals must be unanimously approved by EU nations before it can be put into effect.