UK Car-Flipping: The VAT Fraud Market-Place and Certified Solutions

Abstract:     
Missing Trader Intra-Community (MTIC) fraud and its offspring carousel fraud and contra trading fraud are siphoning huge amounts of VAT revenue from the UK Treasury. This fraud is not a function of the goods involved. It is a function of the market-place. Recently another type of market-place dependent VAT fraud has taken hold in the UK - car-flipping.

In some instances the market-place where these frauds festers is a pre-existing or natural market-place, one that grows out of legitimate commercial practices. Fraudsters enter this market-place (so the argument goes) and take advantage of legitimate businesses who unwittingly get caught up in the fraud of others. In other instances the market-place is a wholly artificial construct of the fraudsters. In this case, almost everyone involved has direct knowledge of the fraud. But make no mistake about it, it is the market-place that makes these frauds work.

Car-flipping is a type of VAT fraud that is analytically very similar to MTIC, carousel and contra-trading frauds. All of these frauds exploit exemptions in the VAT, sometimes the exemption is intended to prefer a minority group (disabled, status Indians), other time the exemption is a necessary attribute of a federal VAT (the zero-rating of intra-community sales).

Certified software solutions are proposed to counter these frauds. Doing it digitally is what the Lisbon Strategy is all about.

UK car-flipping is not just a UK problem. The single market allows any disabled citizen of any of the other 26 Member States to travel to London, purchase (and take possession of) a Lamborghini Gallardos, and with a UK address register the car (probably displaying UK plates) and then "flip" it for a profit. The actual "flipping" need not occur in London. If one wanted more, one could take the car to Denmark, or Sweden where the margin scheme, a local dealer and a 25% standard rate will put more "profit" in the "flip."

Number of Pages in PDF File: 20

Keywords: Missing Trader Intra-Community (MTIC) Fraud, MTIC Fraud, VAT Fraud Market Place, carousel fraud, contra trading fraud, VAT, Car-flipping, UK car-flipping, the Lisbon Strategy, certified tax software

JEL Classification: E62, H20, H26, H71, K00, K34, K42, O23, O33

Accepted Paper Series