EC launches anti-VAT fraud mechanism

A NEW TOOL to combat VAT fraud among EU states has been put in place by the European Commission.

The ‘quick reaction mechanism’ would enable countries to move more quickly to fight VAT fraudsters. The mechanism would allow an implementation of a reverse charge, where the recipient of goods is liable for VAT, rather than the supplier. It could be left in place for up to a year.

Algirdas Šemeta (pictured), commissioner for taxation, customs and anti-fraud, said: “When it comes to VAT fraud, time is money. Fraudsters have become quicker and cleverer in developing schemes to rob the public purse. We must strive to be one step ahead of them. The Quick Reaction Mechanism will ensure that our system is sufficiently equipped to tackle VAT fraud effectively. It will help preserve much-needed public revenues and create a fair and level playing field for honest businesses.”

The UK’s taxman had introduced a ‘reverse charge’ for VAT in June 2007 as part of its fight against carousel fraud. In a carousel fraud, goods are imported VAT-free then sold through a series of companies before being exported – the final company reclaiming the VAT before disappearing, the first company having gone without accounting for VAT.

HMRC’s 2008/09 annual report showed it was still losing up to £2bn in carousel fraud a year, despite the reverse charge.

Earlier this year, a 15-strong gang was found guilty of a £176m carousel fraud, where they had claimed they had sold sold four million mobile phones worth £1.7bn, despite failing to prove the existence of many of these, while about 250,000 were not yet launched in the UK.

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