Memorandum by Olympia Technology Limited
I feel it is extremely significant that the
Select Committee obtain facts from an Entrepreneur in the Telecoms
sector. A coin has two sides and I believe it is only appropriate
that I be given a chance to give at least a version of events
which are currently surrounding the mobile phone industry.
FACTUAL BACKGROUND
— Olympia Technology Ltd (OTL)
was incorporated in July 2000.
— Since its incorporation it has
traded in Telecommunications Equipment.
— Olympia Technology Ltd (OTL)
has rendered its VAT returns on monthly basis.
— OTL claim for input tax with
respect to the period 2004-06 and 2005-06 has been subject to
an "Extended Verification" by HMRC for the period of
nine months.
— OTL has always demonstrated
it takes all necessary precautions and carries out all relevant
due diligence checks to protect the company and this demonstrates
OTL's stability and care in being caught up MTIC fraud.
— OTL has always proved not to
be reckless or careless in conducting its business or transactions
by submitting the commissioners with "All relevant documents"
in order to assist the commissioners in verifying its repayments.
This includes all Invoices, Batch numbers of all mobile phones
purchased, all inspection reports.
— All OTLs suppliers and customers
are vetted thoroughly to ensure that the supplier and Customer
concerned was an established business, was properly registered
for VAT, and that its directors could all be identified.
— A thorough examination is carried
out by an independent company of all goods purchased in order
to ensure that the goods were as stated on the invoice of the
supplier concerned.
— OTL notifies the Commissioners
Redhill VAT Office by fax prior to each and every transaction
taking place, providing details of relevant supplier, customer
and location of the mobile phones in which it is dealing.
— OTL scans and records the IMEI
(Batch Numbers) of all handsets it purchases and stores them on
a database which is used to ascertain whether any handset it subsequently
purchases has not been purchased previously. OTL adapted this
procedure before it was compulsory for the mobile telephone wholesalers
in July 2006.
— OTL provided to its local VAT
officer on a monthly basis all details of the transactions it
undertook, including IMEI numbers of all mobile telephone handsets
its traded in.
— OTL privately insured all shipments
of goods made to its customers on CIF basis.
The Commissioners refused to give any indication
as to when the verification exercise they are conducting would
be completed.
Back in 2004, OTL sent a due diligence presentation
to HMRC department and Regional Co-ordinator for London area,
to make HMRC aware of the checks which OTL perform before and
after the transactions.
The Extended Verification has left an enormous
financial impact on OTL, thus we welcome the verification conducted
by HMRC department, it is my opinion that HMRC should be able
to differentiate between good and bad and carry out verifications
in an appropriate and proportionate manner allowing the honest
tax payer to be able to continue trading legitimately.
Attacking an honest taxpayer, innocent trader
of disrupting business is not a long-term solution to combate
MTIC fraud, as this would shift the burden on the UK courts to
take a different view or approach.
Obtaining an individual derogation is not a
sustainable solution in the long-term, what HMRC need to do is
the following and these are only my suggestions.
1. HMRC should be able to differentiate
between good and bad.
2. HMRC should design and implement their
own system, where traders or business can conduct credit checks
or identity checks. Checks that will identify good from bad, rather
than depending on third party information.
3. Re-introduce Memorandum of Understanding
in the Telecoms sector, and enforcing new stronger measures and
guidelines.
4. Design and implement stronger procedures
for Freight forwarders, who are responsible for the shipments
of mobile phones.
5. Appoint an individual company who will
inspect goods and scan goods on behalf of HMRC.
6. An individual company appointed by HMRC
should scan all IMEI numbers (Batch Numbers), and forward it to
HMRC prior to any shipments leaving the UK or coming into the
UK.
7. HMRC should maintain full control over
the batch numbers thus enabling them to check and authenticate
the IMEI numbers by confirming whether they are genuine or whether
they have been circulated prior to a company buying or selling
it. Leaving the commercial decision to be taken by the taxpayer.
8. A limit should be placed on the size
of a transaction at any one time executed by the trader.
9. Extended verifications should be conducted
expediently and proportionately.
10. Transactions which are in a chain and
represent more than three or five people should not be authorised
or conducted unless the taxpayer, supplier and customers can demonstrate
all those in the chain are identifiable, registered for VAT purposes
under the trade classificaiton of "Telecoms", and conducting
business for more than one year and all information possessed
by HMRC on their system match the ones sent by the trader.
In the Select Committee on Economic Affairs
Sixth Report paragraph 219(d) states "We therefore recommend
that future consideration should be given to the proposition that
the supplier should be given a right to appeal to the courts on
a `Reasonable excuse basis'."
In OTL's verification it took eight months for
the commissioners to conduct verification and nine months to reach
a decision whether to allow or disallow. Sometimes you wonder
if 600 more staff have been employed to tackle MTIC fraud, then
why has so much time accumulated to reach a decision on whether
to "Allow or Disallow" the taxpayer the right to deduct.
Especially when a taxpayer like OTL has demonstrated and proved
that it has never been irresponsible or not careful in conducting
its transactions or informing HMRC all the relevant details to
give rise to input tax.
In previous instances HMRC built cases on innocent
traders based on the relevant information obtained during the
verification exercise only to withdraw cases close to a hearing
because of lack of evidence. This ambiguity on the part of the
commissioners raise serious questions in the manner and method
the verifications exercises are conducted, only to save money
on MTIC and pay the saved money in costs and repayment supplements
to a taxpayer.
23 January 2007
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