First phase of EC estimate of losses due to missing trader intracommunity report
The European Commission has published the first phase report on its attempt to quantify the value of missing trader intra-community VAT fraud. This involves criminals initiating declaring zero-rating on sales of goods across EU borders on a B2B basis when in fact they have been sold with VAT charged. The criminals do not declare this VAT, and eventually disappear.
Missing Trader Intra-Community fraud (MTIC fraud) has been estimated to cost EU member states up to €100 billion – although some more often quoted estimates put it at €50 billion. This forms part of the wider EU VAT Gap, the last estimate of which was €61 billion per annum for 2021 trading.
This first report of the stufy analysis the methodologies that will be used for the next stage calculations. It also looks at the different types of MTIC fraud:
- Simple fraud: single purchase of goods or services using the reverse charge, but VAT is unlawfully charged and withheld
- Carousel fraud: multiple steps of transactions, with many parties effecting frauds on each step.
The report also touches on tactics the EU member states have deployed to combat MTIC fraud:
VAT in the Digital Age proposals
Phase II recommendations to use VAT returns and VIES
The report concludes: “it is recommended for the European Commission to continue the development of the methodology to estimate forgone VAT revenue due to MTIC fraud in the EU and EU Member States under Phase II of this study.
In particular, it is recommended that the methodological scenario based on Intrastat data and classification data mining techniques (Scenario #2) be used for this purpose. Phase II should extend the implementation of the methodology to all Member States and carefully reconsider all the modelling and data compilation decisions that must be made in this process.
It is also proposed to further explore the availability of data from VAT returns and VIES and, should this data become available, carry out an experimental implementation of the methodological scenario based on matching these figures for selected Member States. Such an approach would allow proceeding with the best possible feasible approach, validate it and make a fully informed assessment of the two competing methodological scenarios.”
