Legal Advice for MTIC & Carousel Fraud

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MTIC and Carousel frauds  are complex and highly technical frauds on the tax authorities that are normally prosecuted as offences of Cheating the Public Revenue or charges of Conspiracy to Defraud. They can result in civil proceedings before the HMRC VAT tribunals or criminal proceedings.

MTIC frauds are estimated to have cost the exchequer billions of pounds in lost revenue over recent years.  Consequently, the HMRC has specialist teams focussing on this area with higher than average conviction rates as a result. HMRC verification rates of company VAT returns are also at an unprecedented high as is the incidence of HMRC withholding VAT repayments from companies, even where there is little evidence of a failure to comply with HRMC recommended procedures.

MTIC Frauds

MTIC cases raise specialist questions of law relating to EU law and domestic and European VAT arrangements, the differing enforcement and regulation regimes applicable to those arrangements as well as familiarity with the law relating to the formation and dissolution of companies, a characteristic feature to be found in this type of fraud.

Missing Trader Intra-Community (MTIC) frauds and carousel frauds take advantage of VAT reclamation arrangements for VAT free zero rated goods where business are responsible for collecting and paying over VAT from their customers to HRMC. MTIC or carousel frauds often revolve around companies dealing in small, high value items, such as microchips and mobile telephones that can be bought and sold VAT free in the EU where there is free movement of goods between member states.

In their most recent incarnations MTIC frauds are no longer confined to the phone and computer component industries and extend to jewellery and other high value items.

Carousel and Contra Frauds

In it’s simplest form a MTIC “acquisition” fraud involves a “missing trader” who may typically buy VAT free goods from a supplier based in the EU and then import them into the UK. The goods are then sold on before the trader goes missing, retaining the VAT charged on the sale which should have been paid to the HRMC.

A Carousel fraud is a more complex variant based on the same principle i.e. goods from the first missing trader are then bought and sold by a chain of companies who may play the role of brokers, buffers or exporters.

These transactions take place at VAT inclusive prices with only partial VAT payments made to the HMRC, often to lend the transactions a veneer of legitimacy and cover the tracks of the first trader before the goods are exported out of the UK. They may then be re-exported to the UK for use in another fraud and the process is repeated and thus the carousel goes round again.

Contra-trading is sophisticated mutation of the carousel fraud, where, to hinder detection, the fraud involves two chains of transactions where VAT free goods are imported and exported from the UK to other EU member states in order to offset input and output tax liabilities.

The methods employed in MTIC frauds are constantly evolving in an attempt to evade changes in HMRC practices and regulations. Early interventions by the HMRC are now commonplace, with suspicion falling on high volume complex transactions conducted at great speed. Where criminal charges are brought, individuals involved in running companies suspected of involvement in a MTIC fraud may rapidly find themselves subject to restraint proceedings and a disclosure order.

VAT Diversion Frauds

With alcohol duty rates in the UK amongst the highest in the world, a sizeable black market for cheap alcohol has emerged. Diversion frauds arise when alcohol destined to be exported to another EU country is then illegally brought into the UK and no chargeable payment is made to the HMRC. Drawback frauds are another variant taking advantage of differing and lower duty rates in other parts of Europe.

Alcohol is exported abroad and duty is paid in another European state at a lower rate than the UK before it re-enters the country, with the organisers profiting from the disparity in the two duty rates.