V3.233 Anti-MTIC fraud measures
In Bond House1, the appellant was the unwitting participant in a missing trader inter-community ('MTIC') fraud. In simplified terms, the appellant purchased 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. The ECJ held, however, that the right of a taxable person to deduct input VAT in respect of 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 vitiated by VAT fraud2.
As a result of this decision, the UK successfully made an application3 to the European Commission for a derogation from the provisions of EU legislation to enable it to introduce a reverse charge procedure for transactions between VAT-registered businesses in certain goods. The measures were targeted at goods used for missing trader intra-Community (MTIC) fraud, for example mobile telephones, computer chips and some other similar electronic items4.
The derogation was due to expire on 30 April 2009 but was extended to 31 December 2013. Before this date was reached, it was superseded by amendments to Directive 2006/112/EC, art 199a.
Directive 2010/23/EU inserts art