The measure will target mobile phones, computer chips and other
similar electronic items, which are frequently hit by the scam,
also known as missing trader intra-Community (MTIC) fraud.
Crooked traders obtain VAT registration to acquire goods
VAT-free from other Member States. They then sell on the
goods at VAT inclusive prices – and disappear without paying over
the VAT paid by their customers to the tax
authorities.
The fraud reportedly costs the UK over £1 billion per year.
Recently, UK authorities have taken action against the fraud by
considering all the transactions in a chain of supply involving a
missing trader or a hijacked VAT number and refusing to repay VAT
to any company involved in that chain of supply.
However, the European Court of Justice ruled earlier this month
that such an approach was contrary to EU VAT laws, and the UK
Government has since been seeking another way to tackle the
problem.
It has now asked that the UK be permitted to opt out of certain
provisions of the EU Sixth VAT Directive in order that it can
introduce what is known as a reverse charge procedure for
transactions between VAT-registered businesses in certain
goods.
Under this procedure, the suppliers of the goods do not account
for the VAT on their sales when selling to other VAT-registered
businesses. Instead, it is the responsibility of the purchaser of
the goods to account for the VAT, although they can recover this
VAT in the normal way.
This means that HM Revenue & Customs (HMRC) is not put in a
position where it may have to make repayments of VAT where the
corresponding tax on the purchase has not been paid to HMRC, says
the Government.
"The introduction of the reverse charge is one of many measures
designed to thwart MTIC fraud by taking the criminal profit out of
the transactions,” said Paymaster General Dawn Primarolo MP.
"MTIC is not a phenomenon unique to the UK but also affects
other European Union Member States and we continue to work closely
with our European partners,” she added. “I hope that the Commission
and other Member States will look favourably on our request, and
that the UK can implement the proposed changes as soon as
possible.”
