Commentary

V3.233 Anti-missing trader fraud measures

Part V3 Supplies, acquisitions and imports

V3.233 Anti-missing trader fraud measures

V3.233 Anti-missing trader fraud measures

This paragraph examines measures in place to combat so-called 'missing trader fraud'. Broadly, such fraud involves a 'missing' or 'defaulting' trader deliberately failing to pay its VAT liability for taxable supplies made in the UK. Frequently such fraud involves supplies passing through a number of intermediary traders before either being sold to a UK end user of a customer outside the UK1.

Background and development of missing trader fraud measures

In Bond House2, the appellant was the unwitting participant in a missing trader fraud. In simplified terms, the appellant bought a large quantity of computer processing 'chips' and claimed the input tax on the purchase. HMRC refused to make repayment, arguing that, taken as a whole, a chain of transactions involving fraud was not an 'economic activity' within the meaning of EU legislation; consequently the 'VAT' incurred by the appellant was not VAT at all and could not be recovered as such.

However, the ECJ held that the right of a taxable person to deduct input VAT in connection with certain transactions cannot be affected by the fact that, in the chain of supply of which those transactions form part, without that taxable person knowing or having any means of knowing, that a prior or subsequent transaction is corrupted by VAT fraud3.

As a result of this decision, the UK successfully made an application4 to the European Commission for a derogation from the provisions of EU legislation to enable it to introduce a reverse charge procedure for transactions

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