Chip dealers face paying for rivals' fraud.

(From FT Investor (Stories))

Legitimate dealers in mobile phones and computer chips risk having to pay the unpaid value added tax bills of their fraudulent rivals.

In a test case, the VAT Tribunal has ruled that one of the UK's largest wholesalers of computer components has been forced to pay a VAT bill totalling GBP13m ($21m), even though the unpaid amount is believed to relate to another trader in its supply chain.

The ruling follows a crackdown by Customs & Excise on so-called "carousel fraud". This involves businesses selling high-value goods such as mobile phones across a complicated web of companies in an attempt to avoid payments of VAT.

Fraudulent companies have been set up in the UK in recent years to benefit from this fraud. They close their operations before they are tracked down by Customs & Excise.

According to some estimates, the fraudulent practice costs the Treasury up to GBP2.75bn each year in lost VAT receipts.

Experts warned that the ruling against Bond House Systems, a computer chip wholesaler that claims an annual turnover in excess of $400m (GBP250m), risked putting dozens of legitimate traders out of business. "The requirements are probably ...