"Carousel frauds" – a boost for innocent businesses
Innocent businesses that get caught up in "carousel frauds" set up to milk the VAT system will welcome the ECJ’s Advocate General’s opinion in the joined cases of Bond House Systems Ltd, Optigen Ltd and Fulcrum Electronics Ltd. "Carousel frauds" typically involve a series of transactions involving high value goods such as computer chips or mobile phones, where one of the suppliers concerned "disappears" without paying over to Customs the VAT charged to its customer. Like many other businesses, these companies were prevented from recovering VAT they had paid on goods bought for resale. They challenged the refusal to repay the tax on goods that Customs claimed were part of a "carousel" fraud, even when the claimant company was a legitimate trader and unaware of the situation.
The Advocate General rejected the idea that fraud at some point in a transaction chain "tainted" the whole series of transactions and meant that they were not considered on their own merits. He was also critical of what he saw as an attempt to shift the burden of tackling the frauds away from the tax authorities to the private sector, at the expense of legitimate trade and the proper functioning of the VAT system. Should the ECJ endorse the Advocate General’s opinion, Customs may be forced to repay VAT to businesses caught up in the chain of carousel fraud.
Charities – sponsorship income
Customs have confirmed they accept that the simple acknowledgement of a corporate donation does not give rise to a "supply" for VAT purposes. However, they take the view that use of a corporate logo on a charity website or on stationary would create a supply of sponsorship on which VAT should be charged.
Insurance – increased VAT costs?
On 3 March, the European Court is to issue its decision in a Dutch case (Accenture) about outsourcing the "back office" activities of insurance companies. If the Court follows the opinion of its Advocate General, an increase in VAT costs could follow.
Corporate transactions, flotations etc
The Advocate General’s opinion in the case of Kretztechnik, about the treatment of share issues and the VAT on related costs is due to be issued on 24 February. We will be holding a breakfast briefing on 25 February to discuss the opinion.
This Bulletin is prepared by Deloitte & Touche LLP, a limited liability partnership. Weekly VAT News is designed to keep readers abreast of current developments, but it is a general guide only and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains, or for any errors or omissions.
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