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Missing trader fraud
Missing trader fraud (also called Missing Trader Intra-Community, MTIC, or carousel fraud) is the theft of Value Added Tax (VAT) from a government by organised crime gangs who exploit the way VAT is treated within multi-jurisdictional trading where the movement of goods between jurisdictions is VAT-free. This allows the fraudster (person who commits fraud) to charge VAT on the sale of goods, and then instead of paying this over to the government's collection authority, simply absconds, taking the VAT with him. The term "missing trader" refers to the fact that the trader goes missing with the VAT. "Carousel" refers to a more complex type of fraud in which VAT and goods are passed around between companies and jurisdictions, similar to how a carousel goes round and round. In the UK the fraud is investigated by HM Revenue & Customs and prosecuted by the Crown Prosecution Service and the Crown Office and Procurator Fiscal Service.
In European Union (EU) the European Union Value Added Tax ("EU VAT") allows merchants to charge VAT on the sale of goods when they sell goods to another member state. Figures from Eurocanet, a European Commission sponsored project, released in September 2006, appear to show that the United Kingdom is the main victim of this fraud, having lost an estimated €12.6 billion during 2005-6, followed by Spain and Italy which each lost over €2 billion during this period. From 1 June 2007, the UK is introducing changes to the way that VAT is charged on mobile phones and computer chips to help combat fraud.  UK plans to introduce changes to the way VAT is charged on a wide range of goods from December 2006 were aborted because of failure to reach an agreement with other EU member states.
Operation of the VAT system
In brief, however, a business that buys and sells goods charges VAT to those to whom it sells ('output tax'), and is charged VAT by those from whom it purchases ('input tax'). It can reclaim (subject to various rules) the VAT it pays, and so passes to the Government the net VAT it collects (being output tax less input tax). In this way, a business acts as a tax collector on behalf of the Government. Within the EU VAT, member states charge VAT at differing rates on goods as a form of indirect taxation. All exports of goods however are tax free. This leads to the situation where an exporter will be able to reclaim VAT from the Government, as it will have been charged VAT by the business from which it purchased the goods, however will owe the Government nothing because it has sold the goods tax free.
Operation of the fraud
The fraud exploits this reclamation of tax. It lends itself to small, high value items, such as microchips and mobile telephones.
Missing trader fraud
The simplest missing trader fraud is where a fraudster imports some goods, and then sells them. When he sells them, he charges the price of the goods, plus VAT. He then absconds with the VAT instead of paying it to the Government. This situation, where the goods are made available for consumers in the importer's home market is often known as 'acquisition fraud'. Within the EU VAT system, the fraudster imports the goods from an exporter in another member state. This allows the exporter to zero-rate, which means that the exporter does not have to pay VAT. Meanwhile the fraudster reverse charges the VAT and when the fraudster sells the goods to the vendor the vendor pays the price of the goods and the
but not immediately depending on the day of the month the transaction occurred. which may well be innocent. So far the conspirators have made a profit of £500. . No VAT is charged on that shipment. 2 Carousel fraud A much more complex example is for several businesses to act in concert. This is best explained by way of an example: Consider a trader based in the UK.500 in VAT and therefore has to pay only the difference (£17. however. When the last business in the chain collects £210.500) to HM Revenue and Customs. the first trader would pay £192. £192. The goods are then shipped to a dock in the UK. In this situation. No VAT is charged. Jaswant Ray Kanda.5% VAT (at 4th January 2011 the current standard VAT rate in the UK is 20%) and the conspirator sends £1.410.200.000 paid by the German company without VAT. In a real case there can be many buffers. Contra-trading Contra-trading fraud is the further evolution of carousel fraud. three will suffice for an example. all of the businesses can vanish. In terminology.000. The third trader now sells the telephones to a German company. it is difficult for HM Revenue and Customs to show the links in the chain and thereby refuse to refund the VAT on the export. each pass around the 'carousel' bringing reclaimed VAT to the fraudsters. the goods are sold to a series of companies. The third conspirator pays £1. the first business vanishes without paying the VAT to HM Revenue and Customs.292.500. The second trade has collected £210. Typically the fraudster/importer must pay over the reverse charged VAT to his or her government.000. The third trader has charged no tax on its sale but has paid £210. In an honest operation. and evades government detection by using two carousels of traded goods where one carousel is legitimate and the other is not thereby allowing an accounting scheme where the input and output VATs neutralize each other thereby concealing the fraud. each business described above is called a "buffer". Customs Officials who were investigating them called their operation Maypole as they had clear evidence that Kanda and his gang sent the same lot of goods round and round again. for £1.Missing trader fraud VAT that the fraudster reverse charged.000 from HM Revenue and Customs.500 to HM Revenue and Customs (the UK's VAT collection agency). of Sutton Coldfield. all helping to blur the link between the final reclaim and the original importer.000.000 on the export. Furthermore the same telephones can be used again and again going through the various buffers. The trader now sells those telephones to a conspirator. This may continue for many conspirators. and the sales price of £1. which will vanish.000 in VAT but paid £192.000 perfectly legitimately on buying and selling mobile telephones. The goods therefore go round in a 'carousel'. He pays the French telephone manufacturer for the goods. the fraudster must sell the goods before the fraudster must turn in the reverse charged VAT. West Midlands and his gang were key players in this type of carousel fraud . As this business is removed from the vanishing party. Therefore.500 better off at the expense of HM Revenue and Customs. before being exported again. He buys from France a consignment of mobile telephones for £1.000 in VAT and can therefore reclaim £210. This entire series of transactions can occur without the goods ever leaving the dock in the UK before being re-exported.000. charging VAT on that sale.500 (being the price of the goods plus the tax) to the trader. He charges 17. This conspirator then sells the goods to a third conspirator for £1.100.000 to the second. In the fraud.
Olympia Technologies Ltd. It challenged the UK Government's stance. VAT Tribunal #20570 (2-15-08) "£54 million VAT fraud gang is jailed" (http:/ / www.the 'Bond House' decision Although the example above referred to all the links being co-conspirators in the fraud. co. taking the case eventually to the European Court of Justice. Sentences of 202 Years (http://www. htm) Chapter 7 . bbc. . html).62). BBC News. It is estimated the decision will cost the UK government hundreds of millions of pounds as other companies make their claims.9 to $4. "Clampdown on VAT fraud" (http:/ / news. bbc. .The Cash Carousel (ISBN 978-1-903582-82-4) by Eamon Dillon. stm). . bbc. "So-called 'missing trader' or 'carousel' fraud is estimated to cost European taxpayers up to £170bn a year . Birmingham Mail.How Con Artists Steal Your Money (http://www. stm). stm). health products. In January 2006 the ECJ found in favor of Bond House and ordered that the VAT owed to Bond House be repaid by HM Revenue & Customs. the goods can continue to be sold-on by innocent parties (though the practicalities of this assessment can lead to difficulties in explaining why an organiser would want to risk the fraud being stopped in its tracks by an innocent trader selling to another person not involved in the fraud. .html) • HM Revenue & Customs PN03 2006 Budget Release • Successful Prosecutions in £138m "Carousel" Frauds – 21 Convicted.65 and £2. In the UK. co. uk/ 1/ hi/ business/ 5355426.  Phil Kemp (2008-10-04). co. . 2007-01-08.64 billion (US$2. rcpo. according to a decision in the European Court of Justice it is possible that innocent parties also become involved by simply buying and selling on goods. • Federation of Technological Industries v Customs and Excise Commissioners ( EWCA Civ 1020) • European Court of Justice decision EUECJ/2006/C35403 (http://www. who was owed £13. birminghammail. published September 2008 by Merlin Publishing . and so unable to complete the circle which enables a huge VAT repayment claim by the exporting broker). uk/ 1/ hi/ business/ 6467453. bbc. BBC News.bailii. co. net/ news/ worcestershire-news/ tm_headline=-54-million-vat-fraud-gang-is-jailed& method=full& objectid=18421584& siteid=50002-name_page.uk/rcpo/pressoffice/news/20080929_1. "New anti-fraud VAT rules come in" (http:/ / news.shtml) • The Fraudsters .Missing trader fraud 3 "Innocent parties" . the position until 2006 was that HM Customs and Excise withheld VAT repayments to others later on in the chain. James (2006-09-22).org/eu/cases/EUECJ/2006/ C35403.000 in VAT repayments by HM Customs and Excise. Retrieved 2008-11-21. 2006-09-18. uk/ 1/ hi/ uk/ 7650883.twice the European Union's annual budget. 2007-03-19. According to the BBC. BBC News. BBC News. If it is the first party in the chain who is the absconding fraudster. References      Oliver." The fraud has mutated and now can incorporate all high value goods such as designer goods.com/index_files/Page390.dilloninvestigates.200. Cost of the fraud According to the case Federation of Technological Industries v Customs and Excise Commissioners ( EWCA Civ 1020) in 2002-3 the estimated cumulative cost of such frauds to the UK alone was between £1. "VAT scams hit UK taxpayers hard" (http:/ / news. jewellery etc. "Fraudster's 'pop star' lifestyle" (http:/ / news.gov. on the basis that the transactions were lacking in economic substance and so should be outside the scope of the VAT regime. Bond House Systems Limited was one such "innocent trader". uk/ 1/ hi/ business/ 5369776. stm).
September 10.guardian.1566862. 2005.guardian. • EU clampdown spawns new carousel fraud (http://business. 2007.3604.00.Missing trader fraud 4 External links • Experts stumped by leap in trade gap (http://www.00.uk/business/story/0. .2089860.uk/story/0. Guardian. discusses "missing trader fraud" and "carousel fraud". discusses "contra trading" in the EU and "flipping" in Canada.co. May 29.html).html).. Guardian.co.
EECavazos. Jonnty. LeeG.org/w/index. Tunapul. Doodle77. Framhein. Php2rh.php?oldid=469318860 Contributors: Abigailgem. Editor7655.0 Unported //creativecommons. EdC. 39 anonymous edits License Creative Commons Attribution-Share Alike 3. Jagged.Article Sources and Contributors 5 Article Sources and Contributors Missing trader fraud Source: http://en. Eastlaw. BramleyBarn. Dave T Hobbit.ie. Cybercobra.wikipedia.org/licenses/by-sa/3. George Burgess. Scaningen. Gerbrant. C 1. Mayalld. Arbitrary username. Rror. Stifle. Horatio. Lebob.0/ . Computermacgyver. Conorbrady.
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