1. 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

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

3. Impact on public finances - Previously published estimates of MTIC fraud

4. 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 Domestic Strategy

5. Tackling MTIC – UK International Strategy European Union Improving speed & quality of information exchange (EU regulation 1798/2003) Examining options for change to EU VAT system International Development of international Memorandum of Understanding Agreements and Mutual Legal Assistance Treaties Operational 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

6. 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)

7. Keys Extracts from Kittel 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 Paragraph 57: That is because in such a situation the taxable person aids the perpetrators of the fraud and becomes their accomplice.

8. Multi Lateral Controls – EU Regulation 1798/2003 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 Although Multi Lateral Controls are historic events, they assist by identifying and understanding:

9. Transaction Chain Country Trader Name Vat No Invoice Date Phone Model Qua ntity Price Profit Per Unit Net Value VAT Total EU SupplierEstoniaAxxx 28-Apr- 06 Nokia N912995£502.65 £1,505,436.75 Missing TraderUKBxxx 28-Apr- 06 Nokia N912995£503.45£0.80 £1,507,832.75 £263,870.73 £1,771,703.48 Buffer 1UKCxxx 28-Apr- 06 Nokia N912995£503.65£0.20 £1,508,431.75 £263,975.56 £1,772,407.31 Buffer 2UKDxxx 28-Apr- 06 Nokia N912995£503.70£0.05 £1,508,581.50 £264,001.76 £1,772,583.26 Buffer 3UKExxx 28-Apr- 06 Nokia N912995£503.90£0.20 £1,509,180.50 £264,106.59 £1,773,287.09 Buffer 4UKFxxx 28-Apr- 06 Nokia N912995£504.40£0.50 £1,510,678.00 £264,368.65 £1,775,046.65 Buffer 5UKGxxx 28-Apr- 06 Nokia N912995£505.00£0.60 £1,512,475.00 £264,683.13 £1,777,158.13 BrokerUKHxxx 28-Apr- 06 Nokia N912995£525.20£20.20 £1,572,974.00 Nil £1,572,974.00 EU CustomerFranceIxxx An Example of an Extended Verification of MTIC Transaction Chain No Commercial Rationale EU Customer can buy for less from EU Supplier Buffers – Fixed Price Per Unit Men of Straw EU Supplier UK Buffers EU Customer EU Regulation 1798/2003 Essential information received from Estonia and France

10. Simple Acquisition Fraud

11. Complex Acquisition Fraud

12. Complex Carousel Fraud

13. Mutual Cooperation

14. Mobile phone 3 rd country exports May 2005 – Nov 2006