UK and UAE to tackle VAT fraud

The recent signing of a treaty of cooperation between the governments of Great Britain and the UAE is a positive move that should go some way to stemming the escalating problem of VAT carousel fraud.

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By  Aaron Greenwood Published  December 14, 2006

|~||~||~|The recent signing of a treaty of cooperation between the governments of Great Britain and the UAE is a positive move that should go some way to stemming the escalating problem of VAT carousel fraud. The UK government has implicated Dubai as a major base for traders whose specific aim is to defraud Britain of value-added tax (VAT) revenue that is leveraged on consumer goods sold in the country. The preferred inventory is small-form but high-value consignments of mobile phones and computer chips. The vast majority of these shipments are imported to the UK, where traders sell the products on to third parties before the products are re-exported. The scam enables these traders to sidestep VAT payments on imported goods, before reclaiming VAT revenue when the products are re-exported. Quite often the same consignment of products is employed multiple times, with traders leveraging favourable and liberal trading posts – such as Dubai – to re-export the goods to and from the UK. Carousel fraudsters have employed increasingly sophisticated techniques – including software applications that mirror phantom shipments – to defraud the UK government of an estimated US$24 billion in the third quarter of 2006 alone. According to recent UK press reports, authorities believe that around 90% of VAT carousel revenue is laundered through Dubai’s banks, which has resulted in the UK government working hard to forge closer ties with its UAE counterpart. It has also tripled the manpower of its VAT carousel Customs investigation division to 1400 staff. The new treaty with the UAE, which is one of mutual legal assistance and extradition, will benefit both parties, given the UAE government’s stated ambition of establishing Dubai as one of the world’s biggest – and most legitimate – trading ports. It will also send a clear message to opportunists looking to proffer illegal trade in Dubai by cashing in on the emirate’s booming reputation as a liberalised re-export base.||**||

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