A House of Lords committee report has criticised the government's attempts to deal with the continuing problem of VAT carousel fraud. Matt Henkes reports
It warned that the measures used by HM Revenue and Customs (HMRC) are unsustainable, and said that the problem was out of control.
In its report, the House of Lords EU committee said that current methods were "an inefficient and unsustainable use of HMRC's resources", adding that they also "impose a significant burden on smaller firms".
Carousal fraud, or missing trader fraud, occurs when criminals trade goods such as computer chips or mobile phones across EU borders, where rules state that they are exempt from VAT.
After the goods are imported and sold on, the fraudsters then dishonestly reclaim VAT at a cost to the taxpayer.
The report argued that this fraud is only possible because EU members' fiscal authorities have chosen to implement for the taxation of trade within the EU.
"Wide-ranging change to the VAT system is required," it said. "The government should start discussions with the European Commission and other member states on the form this should take."
"It is now time for the government and other member states to look more sympathetically at a radical change," it added.