Missing Trader Intra-Community Fraud (Carousel Fraud)

An intricate VAT fraud in which individuals or businesses claim repayment of VAT on the export of goods to fictitious purchasers in other EU countries. Involves a complex trail of transactions across multiple member states.
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Definition

Missing Trader Intra-Community (MTIC) Fraud, also known as Carousel Fraud, is a sophisticated form of VAT fraud where fraudsters exploit the VAT system between EU countries. The perpetrator claims repayment of VAT on the exportation of goods to a fake purchaser located in another EU member state. This fraudulent activity typically involves a series of transactions among multiple companies spread across different EU countries, allowing the fraudulent reclaim of VAT.

Carousel fraud includes a cycle where the same batch of goods is imported and exported repeatedly. An alternative type is Acquisition Fraud, where false claims for input tax are made on acquisitions of non-existent goods or services.

Specific statutory measures to address MTIC fraud are provided in the Finance Act 2003 and the Finance Act 2006.

Examples

  1. A Chain of Companies:

    • Company A sells goods to Company B without charging VAT.
    • Company B sells to Company C and charges VAT.
    • Company C falsely claims VAT refund on the purchase from Company B.
    • Each company in the chain is located in a different EU country, complicating detection and enforcement by tax authorities.

  2. Repeated Transactions (Carousel):

    • Company A in Germany exports goods to Company B in Spain.
    • Company B then sells those goods to Company C in Italy.
    • Company C exports the goods back to Company A in Germany.
    • This cycle continues, with VAT being fraudulently claimed and refunded at various points.

FAQs

Q: What is the fundamental purpose of MTIC fraud?

A: The primary objective is to fraudulently reclaim VAT on goods that are purportedly exported to another EU member state, creating unwarranted profits.

A: In Acquisition Fraud, claims for input tax are made on fictitious purchases of goods or services, whereas Carousel Fraud involves the repeated claiming of VAT refunds through a series of transactions around the same goods.

Q: What are the key legislative measures against MTIC fraud?

A: The Finance Act 2003 and the Finance Act 2006 lay down specific provisions to curb MTIC fraud activities, including criminal penalties.

Q: Is MTIC fraud limited to specific types of goods?

A: No, it can involve various goods, though high-value items like electronics are commonly targeted due to their ease of transport and high VAT refund potential.

Q: Can individuals be directly prosecuted for MTIC fraud?

A: Yes, individuals involved can face severe legal consequences, including imprisonment and fines, under the provisions of the Finance Acts and broader criminal law.

VAT:

  • Value Added Tax: A consumption tax placed on a product whenever value is added at each stage of the supply chain.

Input Tax:

  • Definition: VAT that a business can reclaim on its purchase of goods and services.

Online Resources

  1. “Tax Fraud and Evasion: A Guide to Uncovering and Abating Tax Fraud and Evasion” by J.K. Lasser - A comprehensive guide on tax fraud including VAT fraud.
  2. “The VAT Fraud Manual: How VAT Came to Be Ruined in the US and Lessons From Europe” by Richard Gill - Useful insights into VAT fraud practices and countermeasures.
  3. “Forensic Accounting and Fraud Examination” by Mary-Jo Kranacher, Richard Riley, and Joseph T. Wells - Covers a variety of fraud schemes, including VAT fraud.
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