Radical change required
The House of Lords European Union Committee has called on the Government to look again at how it deals with VAT fraud on goods imported from other EU states in the light of missing trader fraud. The scale of such fraud on Government revenue was estimated to have been £4.75 billion in 2005-06.
Radical change required
The House of Lords European Union Committee has called on the Government to look again at how it deals with VAT fraud on goods imported from other EU states in the light of missing trader fraud. The scale of such fraud on Government revenue was estimated to have been £4.75 billion in 2005-06.
The committee points out that carousel fraud is only possible due to rules that EU members' fiscal authorities have chosen to implement for the taxation of trade within the EU. They argue that until this basic issue is addressed, attempts by the Government to limit missing trader fraud by methods such as 'extended verification', i.e. a more detailed examination of VAT rebate requests on goods at high risk of being involved in the fraud, will have limited effect. Overall, the report states that extended verification is an 'inefficient and unsustainable use of HMRC resources and imposes a significant burden on smaller firms'.
The report recommends that rather than making changes at the margin of the VAT collection regime, there needs to be a pan European radical approach to VAT charges that eliminates missing trader fraud. The Government's preferred solution, the reverse charge, will not solve the problem, according to the committee. It sees clear benefits in a flat rate origin system where a VAT rate of 15% would be applied to all cross border trades in the EU. Under this system VAT charged by the exporter would be collected and kept by its own country and the refund would be given to the importer by its own Government. This would benefit net exporting countries and reduce tax revenues for net importers but this effect would be minimised as VAT rates would be equal at 15% across the EU. The Committee argue only a radical change to the way VAT is charged across Europe will significantly reduce missing trader fraud.
The report Stopping the Carousel: Missing Trader Fraud in the EU is published by The Stationery Office and can also be found at www.parliament.uk/parliamentary_committees/s_comm_a.cfm.
