Government efforts to help the Treasury combat carousel fraud have been dealt a severe blow as three EU countries spearheaded by France derail a key policy overhaul.

UK representatives met with French envoys in a bid to resolve the dispute before a high-profile meeting of finance ministers commenced, but a compromise could not be reached, causing the proposal to be removed from the agenda.

France, supported by Portugal and Spain has been in opposition of a move that would change the way VAT is charged on goods targeted by gangs.

Currently VAT is charged between each link of the chain which gives fraudsters the opportunity to 'reverse charge', or claim multiple VAT refunds, but the UK had called for VAT to be charged to the final customer at the end of the supply chain after the purchaser had received the in-demand items, which include computer chips, mobile phones and PDA'S.

France, Portugal and Spain were concerned that such a change would result in scammers shifting their operations to other countries and products, possibly undermining the entire sales tax system.

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Britain's carousel fraud battle suffers European blow

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