Missing Trader Intra Community Fraud MTIC VAT Fraud

Missing Trader Intra Community Fraud (MTIC) VAT Fraud Practical aspects of cooperation between Member States and EU Institutions A UK Perspective – May 2008 Cedric Andrew MTIC National Coordinator HM Revenue and Customs, United Kingdom

Understanding MTIC Ø The biggest VAT fraud that we face. Ø Orchestrated attack on the VAT system by organised criminals. Ø Requires contrived supply chains involving apparently legitimate businesses. Ø Takes advantage of EU VAT rules and trade facilitation. Ø Main commodities – were until 1 st June 2007 mobile phones and computer chips – currently metals, alcohol, soft drinks Ø Major threat to public finances

Impact on public finances - Previously published estimates of MTIC fraud

Tackling MTIC – UK Domestic Strategy Range of civil interventions – – – Registration – point of entry to VAT system VAT repayment – extended verification: ‘Knowledge’ test Joint & several liability Selective application of reverse charge derogation Criminal investigation & prosecution – – Exemplary prosecutions Working with other UK and International law enforcement agencies on joint investigations

Tackling MTIC – UK International Strategy Operational Ø Ø Ø Joint working with international partners Mutual Administrative Assistance to track goods, paperwork & businesses e. g. Multi Lateral Controls Criminal work to trace money and identify orchestrators Mutual Legal Assistance European Union Ø Ø Improving speed & quality of information exchange (EU regulation 1798/2003) Examining options for change to EU VAT system International Ø Development of international Memorandum of Understanding Agreements and Mutual Legal Assistance Treaties

The Knowledge Principle Derived from the following ECJ judgements : • Bond House, Optigen and Fulcrum (UK - Non Economic Argument ) • FTI (UK - Joint and Several Liability) • Objective test confirmed by Axel Kittel (Belguim)

Keys Extracts from Kittel Ø Paragraph 56: ‘a taxable person who knew or should have known that, by his purchase, he was taking part in a transaction connected with fraudulent evasion of VAT must, be regarded as a participant in that fraud Ø Paragraph 57: ‘That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice. ’

Multi Lateral Controls – EU Regulation 1798/2003 Although Multi Lateral Controls are historic events, they assist by identifying and understanding: • • The individuals orchestrating the fraud The nature of their fraudulent behaviours The methodology and the characteristics of the fraud All of which can be applied to identify current and future fraudulent activity and to develop appropriate targeted administrative and criminal interventions

An Example of an Extended Verification of MTIC Transaction Chain Country Trader Name Vat No EU Supplier Estonia A Missing Trader UK Buffer 1 Profit Per Unit Invoice Date Phone Model Qua ntity Price xxx 28 -Apr 06 Nokia N 91 2995 £ 502. 65 B xxx 28 -Apr 06 Nokia N 91 2995 £ 503. 45 £ 0. 80 £ 1, 507, 832. 75 £ 263, 870. 73 £ 1, 771, 703. 48 UK C xxx 28 -Apr 06 Nokia N 91 2995 £ 503. 65 £ 0. 20 £ 1, 508, 431. 75 £ 263, 975. 56 £ 1, 772, 407. 31 Buffer 2 UK D xxx 28 -Apr 06 Nokia N 91 2995 £ 503. 70 £ 0. 05 £ 1, 508, 581. 50 £ 264, 001. 76 £ 1, 772, 583. 26 Buffer 3 UK E xxx 28 -Apr 06 Nokia N 91 2995 £ 503. 90 £ 0. 20 £ 1, 509, 180. 50 £ 264, 106. 59 £ 1, 773, 287. 09 Buffer 4 UK F xxx 28 -Apr 06 Nokia N 91 2995 £ 504. 40 £ 0. 50 £ 1, 510, 678. 00 £ 264, 368. 65 £ 1, 775, 046. 65 Buffer 5 UK G xxx 28 -Apr 06 Nokia N 91 2995 £ 505. 00 £ 0. 60 £ 1, 512, 475. 00 £ 264, 683. 13 £ 1, 777, 158. 13 Broker UK H xxx 28 -Apr 06 Nokia N 91 2995 £ 525. 20 £ 20. 20 £ 1, 572, 974. 00 Nil £ 1, 572, 974. 00 EU Customer France I xxx Net Value VAT Total £ 1, 505, 436. 75 Men of Straw No Commercial Rationale • EU Regulation 1798/2003 • EU Supplier • EU Customer can buy for less from EU Supplier • Essential information received from Estonia and France • UK Buffers • EU Customer • Buffers – Fixed Price Per Unit

Simple Acquisition Fraud

Complex Acquisition Fraud

Complex Carousel Fraud

Mutual Cooperation

Mobile phone 3 rd country exports May 2005 – Nov 2006