The plan is designed to combat a crime dubbed 'carousel fraud'.
Criminals have been moving digital goods around Europe, buying and
selling them with VAT included. They then reclaim the VAT from the
Treasury without ever having passed it on to Government in the
first place.
Because VAT is harmonised across Europe, the permission of the
Commission is needed before Revenue and Customs (HMRC) can switch
to so-called 'reverse charging', where no VAT is charged until the
final sale in the chain. Customs applied in January to alter the
system and awaits a ruling from the Commission.
Kovacs told The Guardian newspaper that permission would be
granted. "Britain will get its approval in the next couple of
weeks," Kovacs told the newspaper. "For the UK, this is a temporary
step, but not a complete solution."
A spokeswoman for Kovacs said that he was not retreating from
his comments. "People can apply for derogation if their change is
proportionate and limited," said spokeswoman Maria Assimiakopoulou.
"Some countries make applications that are wide and general; the
UK's is not so is more likely than others to be granted."
The ruling, which will release the UK from its obligations under
the Commission's Sixth VAT Directive, will only be a temporary
measure. The entire European VAT regime is being overhauled, and
that process will address carousel fraud.
"Although the common legal framework for administrative
cooperation was reinforced some years ago, the Member States do not
make sufficient use of the new possibilities offered and the level
of administrative cooperation is not commensurate with the size of
intra-Community trade," said a Commission announcement of that
review.
Elements of the Finance Bill 2006 will allow for reverse
charging. That Bill is currently progressing through the Houses of
Parliament and will receive its third reading in the House of Lords
next week, said HMRC spokeswoman Sandra McKay. "It means that if we
do get permission in Europe we are ready to go," she said.
The UK losses due to carousel fraud are estimated by HMRC as
being between £1.12 billion and £1.90 billion for 2004–2005 that
office said.
