Annex A
THE EFFECTIVENESS OF THE UK'S STRATEGY FOR
TACKLING MTIC FRAUD
In February 2005 the Advocate General released
his Opinion on an ECJ case[5]
concerning a legal argument used in the UK to deny suspect VAT
repayment claims from those operating in MTIC carousels. The Opinion
created legal uncertainty in the application of this anti-fraud
measure until, in January 2006, the ECJ ruled that EU law did
not allow the approach taken by the UK, but provided an alternative
basis on which to refuse suspect and abusive claims.
This sequence of events prompted a significant
rise in the trading activity associated with MTIC fraud during
the second half of 2005-06 and the first quarter of 2006-07, for
which there appears to be no commercial or economic rationale.
In response, HMRC strengthened their operational strategy and
increased resources in order to verify a greater number of VAT
repayment claims that bear the distinct indicators of involvement
with MTIC fraud. A subsequent ruling by the ECJ[6]
in July last year has clarified the legal test to be used when
refusing suspect and abusive claims.
The Office for National Statistics, using overseas
trade data supplied by HMRC, publishes monthly estimates of the
value of UK trade that is missing or under-reported as a result
of MTIC carousel fraud. That data, contained in the table below,
provides an indicator of the level of MTIC-related trading activity,
and demonstrates how the cases mentioned above and HMRC's operational
strategy have impacted on the fraud.[7]
Table 1
ESTIMATES OF MISSING TRADE ASSOCIATED WITH
MTIC FRAUD IN THE UK
|
| Quarter ending | Value of MTIC-related
trade (£bn)
|
|
| September 2004 | 0.6
|
| December 2004 | 0.7
|
| March 2005 | 1.0
|
| June 2005 | 2.3
|
| September 2005 | 3.5
|
| December 2005 | 4.4
|
| March 2006 | 11.6
|
| June 2006 | 14.3
|
| September 2006 | 2.2
|
| December 2006 | 0.6
|
|
5
Bond House et al, joined cases C-354/03, C-355/03 and
C-484/03. Back
6
Axe/Kittel and Recolta Recycling, joined cases C-439/04 and C-440104. Back
7
Note that export trading typically results in a VAT repayment
claim being submitted to HMRC between one and four months later. Back
| 
