TURNOVER TAXES: HARMONISATION OF THE LAWS
OF MEMBER STATES (13390/06)
Letter from the Chairman to Rt Hon Dawn
Primarolo MP, Paymaster General, HM Treasury
Thank you very much for your Explanatory Memorandum
13390/06. It was considered by Sub-Committee A at their meeting
on 24 October 2006. Whilst we understand the pressures imposed
by the short deadlines in the decision making process we would
have appreciated more time to consider the document in order to
make a full and constructive contribution. Nevertheless we have
decided to hold the document under scrutiny pending clarification
of a few issues.
We would like to know why the Proposal only
covers these specific types of goods: this will encourage fraudsters
to concentrate on other products. Furthermore why is this derogation
not to be extended to cover other Member States since both you
and the Commission appear to consider this to be an effective
way to combat VAT fraud across the EU. Is this a temporary measure
pending Council agreement on Community-wide measures to combat
this fraud? If so, will its effectiveness be measured and used
to evaluate the proposals for a permanent system?.
We would be grateful for the full Regulatory
Impact Assessment and your estimate of the costs involved for
UK business from the change to the reverse charging system.
24 October 2006
Letter from Rt Hon Dawn Primarolo MP to
the Chairman
Thank you for considering Explanatory Memorandum
13390/06 at your meeting on 24 October 2006. I hope that this
response clarifies those further issues outlined in your letter
of that date.
You asked why the Proposal only covers these
specific types of goods. Small electronic goods are those most
frequently used by fraudsters to commit carousel fraud. Almost
90% by value of carousel fraud is perpetrated using mobile telephones
and computer chips. The Proposal is targeted, to maximise the
impact on the fraud without undermining the overall integrity
of the VAT system. It would also be difficult for fraudsters to
show the legitimacy of a move into a very different product or
market for reasons other than to perpetrate the fraud.
You also asked why this derogation is not to
be extended to cover other Member States. It is possible that
other Member States may indeed apply for such a derogation but
this would be very much a matter for them. I can confirm there
is already considerable discussion in the EU over other solutions
to combat VAT fraud, which is ongoing. The UK's derogation for
a targeted reverse charge will have a very significant impact
on MTIC fraud losses in the short to medium term, and will run
alongside discussions on EU wide measures to tackle the fraud.
The measure is time limited, as are most derogations,
and the UK's experiences of the effectiveness of the reverse charge
will inform these further discussions. Indeed, the UK is required
to produce a report for the Commission and other Member States
within two years.
A full Regulatory Impact Assessment will be
available once the derogation is approved and implemented into
UK legislation and practice.
I hope you find this information helpful.
7 November 2006
Letter from the Chairman to Rt Hon Dawn
Primarolo MP
Thank you for your letter of 7 November regarding
EM 13390/06. This was considered by Sub-Committee A at their meeting
of 28 November. As you are aware, the Sub-Committee is currently
conducting an inquiry into Missing Trader Intra-Community Fraud
and the Sub-Committee decided to continue to hold this item under
scrutiny in conjunction with the inquiry.
We are aware that the Government is continuing
work to seek a derogation on this issue and we do not want our
inquiry to unduly delay this action. The Sub-Committee have therefore
asked me to invite you to give evidence to their inquiry at your
earliest convenience.
29 November 2006
Letter from Rt Hon Dawn Primarolo MP to
the Chairman
As you are aware, in September 2006 the Commission
issued a Proposal allowing the UK to introduce a targeted reverse
charge to combat VAT fraud, as referred to in my letter and EM
of 12 October 2006.
I am pleased to inform you that the Proposal
received political approval at Council earlier today.
I appreciate that the Proposal has yet to clear
the scrutiny process due to its inclusion in the House of Lords
Inquiry into Missing Trader Fraud. I hope you can understand the
importance of this Proposal to the Government, and as such we
had to agree it before it cleared scrutiny. Although regrettable
I hope you will understand this was unavoidable in the circumstances.
19 March 2007
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