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EC moves to more effectively combat carousel fraud are unlikely to be successful and will increase red tape for business, a leading VAT expert has warned.
John Arnold, Ernst & Young's director of European VAT services, also suggested that the plan would be 'treating the symptoms rather than the cause'.
His remarks were in response to news that the EC has given the okay to a system for more quickly exchanging information of transactions between member states.
This speeding up of the process, promised the commission, will enable law authorities to better track criminals engaging in missing trader intra community (MTIC) fraud.
However, John Arnold claimed that were the proposal to be adopted, it would require a more complex system of bureaucracy.
And he said that 'the EC Lisbon Strategy Objective is to decrease red tape for business by 25%, but [this proposal] will clearly go in the opposite direction'.
UK businesses would be expected to submit monthly EC Sales Listings (ECLs) within a maximum of one month from the month end, Mr Arnold pointed out.
This deadline would likely be reduced to three weeks in practice, because HMRC would have to make the information available to the tax authorities in other member states within one month from the month end.
John added that UK businesses making purchases of goods or reverse charge services of more than €200,000 per annum from other member states would have to file a new EC Purchase Listing within the same time limits.
They would also have to file their VAT return monthly, instead of quarterly as at present.
'The big question [is]: will all these increased compliance requirements reduce carousel fraud? I doubt it,' he said.
John, who is chairman of ICAEW VAT & duties committee, went on to suggest that the only way to eradicate carousel fraud is to 'introduce a system whereby VAT is charged on cross-border supplies of goods and services'.
He continued: 'Trying to add patches to the current system and introducing increasing compliance obligations for business only increase the costs and risks of trading between member states.
'It is treating the symptoms rather than the cause.'
John then questioned countries' capacity to handle the swathes of extra data supplied by businesses.
'It is not clear that the tax administrations in member states… have the IT capacity to match, or even review, these transactions at the time the ESLs are received.
'In view of the large amount of information… it is unlikely that more frequent submissions will enable member states to take action in time to catch fraudsters.
'I know from evidence given to Parliament that many member states, including the UK, do not currently meet the three-month target for responses to requests for information from other member[s].'
John concluded: 'Before any decisions on increased reporting requirements are taken, the Commission and member states need to demonstrate how they will act on the earlier receipt of information.
'In addition, member states should be required to raise any queries on the information supplied by a business within a similar short time period to that for the submission of ESLs.
'Otherwise, business is likely to regard the proposals more as spin to give the appearance of action, rather than as a serious measure to deal with carousel fraud.'
