Carousel fraud case comes to a head

The ECJ will tomorrow rule on a key ‘carousel’ fraud case, which together
with other similar cases is worth hundreds of millions of pounds to the

The court will announce whether or not HM Revenue & Customs has been
successful in its attempt to offset the costs of ‘carousel’ fraud onto unwitting
businesses involved in the VAT chains the fraud exploits.

Carousel cases involve so-called Missing Trader Intra Community frauds. The
ECJ has been asked to rule on whether businesses at the end of the fraudulent
supply chains are entitled to claim back VAT they have paid.

HMRC contends that, since they are part of a chain which began with a
fraudulent transaction, the process is not a legitimate economic activity, and
hence it does not have to make the VAT payments. MTIC frauds involve a trader
selling goods, but not paying the VAT to the relevant authorities on the sale,
before disappearing (the missing trader element).

In the case before the ECJ, Bond House, Fulcrum and Optigen, in joined cases,
argued that they were innocent victims, and were themselves engaged in an
economic activity and should be entitled to the tax as a result.

The advocate general, whose view is generally followed by the court, gave an
opinion in favour of the companies last year.

A whole host of other cases have been held up pending the Bond House
decision, with advisers stating the claims may extend into the hundreds of

ECJ verdicts can also give rise to damages claims, which could also be
substantial given that some traders, such as Fulcrum, have gone bust as a result
of not receiving the VAT repayments.

Bond House is itself waiting on around £15m of tax, whilst Customs says it
loses almost £2bn a year as a result of MTIC frauds more generally.

Penny Hamilton, of Pump Court Tax Chambers, said the numbers would be
significant: ‘It is a high volume, relatively high-value trade.’

John O’Donnell, director of indirect tax investigations at Chiltern, said:
‘We fully support the authorities in their efforts to tackle carousel fraud, but
it is not fair to penalise innocent parties as part of an attempt to catch the
real fraudsters.’

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