The Federation of Technological Industries (FTI), which represents IT suppliers, has won a ruling in the High Court to take its claim, that Sections 17 and 18 of the Finance Act 2003 are unfair, to the European Court of Justice.
Sections 17 and 18, which apply to the mobile phone and IT industries, mean businesses that become unknowingly involved in VAT fraud can be held liable for the unpaid VAT, which can often run into millions of pounds.
‘The FTI is unhappy that member traders involved with the supply of products are responsible for VAT payments that have not been paid earlier in the chain,’ said Bob Holland of Dass Solicitors, which is representing the FTI in the case.
‘This decision is a victory and we hope the European court will agree the government has no authority to enact Sections 17 and 18 of the act.’
But Holland warned that Customs has made an application to appeal against the ruling, which could delay the case. He added that the FTI’s ultimate goal is for Customs to work with the industry to come up with a fairer way of fighting this type of fraud.
However, Customs said it is confident the legislation in dispute is legitimate and that it will have ultimate success in Europe.
‘We believe [Sections 17 and 18] are valid under European law, and at least four other European Union member states also have the measures,’ a Customs representative said.
Nitin Joshi, director at PKF, said the law is clear, and that it is resellers’ responsibility to know how to manage the risks.
‘Customs is quite rightly focused on stamping out delinquency,’ he said. ‘VARs must carry out checks whenever they buy products.’
However, Nick Morse, managing director of distributor Mindshare, said: ‘Any corporate body or individual should not be held responsible for other people’s actions.’
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