EU VAT fraud crackdown is ‘welcome’ for UK war on terror financing
04 Oct 2017

The European Commission (EC) on Wednesday proposed reforms aimed at slashing VAT fraud by around 80%, amid fears that it is financing criminal gangs, including terrorists.

According to the EC, over 150 billion euros of VAT is lost annually, depriving members states of much-needed revenue. Of this figure, around 50 billion euros is estimated to be due to cross-border VAT fraud.

The proposals, which also aim to make the current system more ‘robust and simpler’ for companies, will see VAT charged on cross border-trade between businesses. Presently, such trade is VAT-exempt and enables ‘unscrupulous’ firms to collect VAT without remitting the money to the state.

Firms and consumers currently face 28 different VAT regimes when operating cross-border, and criminals and possibly terrorists have been exploiting such loopholes, said Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs.

Other measures contained in the proposals are aimed at minimising red tape, and include simplifying invoicing rules and also scrapping the compulsory submission of ‘recapitulative statements’ or cross-border transaction lists to tax authorities.

The proposals are likely to be welcomed within EU states and to those dealing with them, not least the United Kingdom, which is under pressure to do more to tackle terrorism, especially after the recent Parsons Green, London Bridge and Manchester attacks.

The UK is also reportedly home to 35,000 Islamist fanatics, more than any other country in Europe.

Although the British government has committed to fight terrorists and combat the funding of terrorism (CFT), the issue of VAT fraud being used to finance terrorism is a problem in the UK, a financial crime expert told KYC360.

VAT fraud is a long-established method used in funding terrorism within the UK, and any move to tackle that is a ‘good thing,’ said UK-based Simon Dilloway, principal, Lopham Consultancy.

“It is popular within certain communities in the United Kingdom and there are known links which have come up in CFT investigations,” said Dilloway, whose decades-long career with the Metropolitan Police included conducting financial investigations of high priority terrorist targets.

VAT fraud is ‘extremely complicated’ to investigate, however, because of the increased terror threat, [authorities] are now looking at more methods to combat it, he explained.

Asked to comment on the issue of certain communities funding terror through VAT fraud in the UK, a spokesman for tax collector HM Revenue and Customs said: “HMRC moves its resources to tackle areas of greatest risk. The UK has one of the lowest indirect tax gaps in the EU.”

By Irene Madongo

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