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Internet Security Threat Report 2014

Customs and Excise's ability to counter missing-trader or carousel fraud suffered a blow late last week with an adverse decision from the Advocate General of the European Court of Justice.

In October 2003 Bond House Systems, a large computer component wholesaler, lost a case against Customs which led Customs to withhold the firm's VAT rebate.

Bond House was driven out of business by the decision and laid off all but two staff. It was forced to cease trading after losing a tribunal case in May 2003. Customs accepted the firm did not knowingly break the law but was an unwitting part of the fraud. Customs withheld £13m in Vat rebates from the firm, which continues its legal fight against Customs.

Customs also withheld payments for two other firms. in 2003-2004 Customs withheld £201m in VAT rebates due to traders, mostly computer component brokers and mobile phone distributors, in a clampdown on missing trader fraud.

Last week The European Court of Justice's Advocate General said that these actions are unfair to legitimate businesses. His opinion is not binding but is likely to be accepted by the court later this year.

Customs is waiting for the final judgment, but in the meantime it says it has several other tools to fight the fraudsters. In April 2003 it introduced "joint and several" liability and tougher guidelines on making repayments in cases without valid invoices.


A spokesman for Customs told The Reg: "This is just one of the tools we use against Vat fraudsters. And overall we are reducing levels of fraud." He said "joint and several liability", which makes brokers responsible for VAT payments throughout their buying chain was particularly useful.

Carousel frauds, or missing trader fraud, involve importing VAT-free goods from another EC country, selling them on with VAT added and then disappearing before paying Customs the VAT.®

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Dealers win High Court VAT action against Customs
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