Boston University School of Law

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

Richard Thompson Ainsworth

47 Tax Notes International 1157 (September 24, 2007)
Boston University School of Law Working Paper 07-19

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.”  

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Richard Thompson Ainsworth Contact Information
vatprof@bu.edu
LL.M. Tax Program
Boston University School of Law
765 Commonwealth Ave
Boston, MA 02215
USA

Phone: (781) 773-1052

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