CHAPTER 5: SUMMARY OF CONCLUSIONS
77. We recommend that Government works with other
Member States to ensure that the Court of Auditors' proposed changes
to the Community Transit system are prioritised in order to attack
the supply chain for this variant of MTIC Fraud. (Paragraph 12)
78. Missing Trader Intra-Community Fraud is occurring
on a substantial scale across the European Union. We agree with
HMRC that this is an outright attack on the tax system, and note
that it precipitates other crimes, such as theft of consignments.
We accept the evidence that the majority of the fraud is being
undertaken by a small number of sophisticated criminal gangs.
(Paragraph 19)
79. As things stand, HMRC has no option but to
continue with extended verification; however they need to take
real and substantive steps to ensure that their actions do not
damage the innocent and are proportionate to the scale of the
fraud. We note that, according to the Paymaster General, this
approach has led to a "massive drop" in attempted MTIC
fraud in 2006/07. This appears to justify their approach; however,
the system of extended verification is an inefficient and unsustainable
use of HMRC's resources, and does impose a significant burden
on smaller firms. (Paragraph 28)
80. It is generally accepted that the broad phenomenon
of MTIC fraud is out of control; we expect it to continue to mutate
into other sectors. (Paragraph 40)
81. We suggest that HMRC should undertake further
work to examine the viability of real-time data capture of transactions
by VAT-registered companies. (Paragraph 45)
82. HMRC's current strategy has succeeded in
containing MTIC fraud, but will not eliminate it; the Government
sought the reverse charge derogation because HMRC's current strategy
is unsustainable. The reverse charge will stop MTIC fraud where
it has been most prevalent, but we expect the fraud to migrate
and mutate. Consequently we anticipate that when the UK's derogation
is reviewed in two years time there will be requests for the reverse
charge scheme to be expanded, either to other Member States or
other products, or both. (Paragraph 51)
83. The current mechanism for intra-Community
VAT transactions is not sustainable. While the amount of money
being lost in the United Kingdom may have fallen in 2006/07, mutation
into other industry sectors will bring a subsequent rise in fraud
levels. We believe that prevention is better than cure. A wide-ranging
change to the VAT system is required and the Government should
start discussions with the European Commission and other Member
States on the form this should take. (Paragraph 52)
84. We believe however that an Origin System
or Flat Rate Origin System without a Clearing House merits further
serious study. (Paragraph 74)
85. Harmonisation of VAT rates would remove the
opportunity of MTIC fraud. The UK is not alone in opposing this
harmonisation. Doing nothing is not an option. A continued ratcheting
up of the complexity and compliance requirements related to the
existing system will impose increasing costs on legitimate business.
A solution to MTIC Fraud will benefit every Member State: countries
need to recognise this and agree to act together. It is now time
for the Government and other Member States to look more sympathetically
at a radical change to the VAT system. The flat rate origin system
proposal, either with or without a clearing house, merits further
serious study of the potential impact on businesses, levels of
trade, and Member State revenues. (Paragraph 75)
86. We invite the Government, when responding
to this Report, to assess the relative merits of all the options
for reform which it describes. (Paragraph 76)
| 
