UK Authorities Make Major Swoop Against VAT Fraudsters

by Robert Lee, Tax-News.com, London

17 August 2006

The UK tax authorities have announced that 22 people across the United Kingdom have been detained, in the country's biggest ever operation targeting carousel value-added tax fraud.

HM Revenue & Customs said that over 400 of its criminal investigators, supported by 100 officers from Strathclyde Police, Greater Manchester Police and the Metropolitan Police Service, executed over 60 search warrants nationwide at business and domestic addresses in the early hours of Tuesday morning. The ongoing investigation is being co-ordinated by HMRC in Scotland, in consultation with the Crown Office and Procurator Fiscal Service.

“Organised criminals are attacking the tax system, with the aim of stealing huge amounts of revenue," stated Gordon Miller, Deputy Director, HMRC Investigation.

"The scale of the problem across Europe is unprecedented, and HMRC has significantly strengthened its response to this serious fraud," Miller added.

According to HMRC, the organised criminal networks behind these frauds are "well resourced, innovative, resilient", and the authorities had been expected to take strong action against perpertrators of the fraud to counter fears that the scam was running out of control.

"Today’s operation, the biggest ever undertaken by HMRC, is part of a large scale, international criminal investigation into frauds that may run to hundreds of millions of pounds," Miller stated. "We are committed to tackling carousel fraud and to showing the criminals behind it, wherever they operate in the world, that there are no safe havens."

While Treasury estimates put the revenue loss to carousel fraud, officially known as missing trader intra-community fraud (MTIC), at between GBP1.1 billion and GBP1.9 billion in 2004/5, recent trade figures have suggested that this figure is much higher, with some GBP10 billion in UK exports thought to have been associated with VAT fraud in the second quarter. Some estimates have put total revenue losses across the EU at EUR50 billion.

In its simplest form, this type of fraud involves obtaining a VAT registration number in the UK for the purposes of purchasing goods free from VAT in another EU Member State, selling them at a VAT-inclusive purchase price in the UK and then going missing or defaulting without paying the VAT due to HMRC. In its more abusive form, the 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 so-called carousel. The goods most commonly associated with this type of fraud are mobile phones and computer chips.

Member states are also seeking to take action at a legislative level to tackle the growing problem. From October, the UK is expected to introduce a 'reverse charging' mechanism under which the purchaser of the goods targeted by fraudsters, rather than the seller, will be liable to account for the VAT on the sale. Action is also expected soon at EU level after the Tax Commissioner published a paper outlining proposals to limit opportunities for the fraud to take place.

Recommended