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The Impact of Missing Trader Intra-Community Fraud on Trade Statistics

Explore the impact of Missing Trader Intra-Community Fraud on trade statistics, its implications on VAT systems, and methods to address this issue. Learn about adjustments in trade data and ongoing efforts to combat fraud. For more details, contact Sandra Tudor or Andrew Kochen via email.

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The Impact of Missing Trader Intra-Community Fraud on Trade Statistics

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  1. The Impact of Missing Trader Intra-Community Fraud on Trade Statistics Sandra Tudor Head of Statistics and Analysis of Trade Unit

  2. Missing Trader Intra-Community Fraud • Increasing problem since the introduction of the single market • Takes advantage of VAT system, where goods are zero rated on transactions between EU Member States • Missing traders charge for VAT on sales but do not pay the tax to government

  3. £1,000,000 - VAT Nil £970,000 - VAT Nil (‘A’) EU Supplier (‘E’) UK Broker (‘B’) UK Missing Trader Tax Loss - £157,500 £900,000 + VAT (‘D’) UK Buffer Trader (‘C’) UK Buffer Trader £ 920,000 + VAT A Simple MTIC carousel model2 countries £ 950,000 + VAT

  4. Media headlines, 2002-2003 UK growth revised up as deficit shrinks FT Dec 2002 Two arrested for £80m VAT fraudBBC Sept 2003 Fraud cases up, financial losses down The Register, July 2003

  5. Original work for Balance of Payments 2002 - July 2003

  6. Impact on Trade Statistics • Effect on Intrastat data collection • Exports are captured, Imports are not • Correct treatment is to increase imports • Increasing imports worsens • Balance of Trade • Current Account deficit • Goods are usually high value/low mass • No estimate of acquisition fraud

  7. The adjustments • UK’s methodology includes information uncovered by Customs operational activity • The estimates were corroborated by: • national estimates of VAT loss • reduced EU trade asymmetries • smaller imbalances in the relevant products in the ONS annual supply and use analysis

  8. Next Steps August 2003 to Feb 2005

  9. Project 2 • Reviewed methodology • Looked at Acquisition Fraud • Arranged to include the estimates in the Overseas Trade Statistics • Compared data sources: • Arrivals, ESL purchases, VAT declarations • Dispatches, ESL sales, VAT declarations

  10. Project 2 • Investigated how best to incorporate the adjustments for 1999 – 2004 into HMRC’s Overseas Trade Statistics • Uses 3 month rolling average • Second joint article published Feb 2005

  11. Further developments Non-EU trade

  12. (‘G’) EU Trader (‘H’) EU Trader (‘F’) non EU Trader (‘E’) UK Broker MTIC carousel model, with non EU £970,000 - VAT Nil £1,000,000 - VAT Nil (‘A’) EU Supplier (‘B’) UK Missing Trader Tax Loss - £157,500 £900,000 + VAT £ 950,000 + VAT (‘D’) UK Buffer Trader (‘C’) UK Buffer Trader £ 920,000 + VAT

  13. Third Project

  14. Estimates of missing trade(EU arrivals)

  15. New Issues • Non-EU countries involved in chains • Scale of revisions • Reverse charging • Identifying turning points

  16. Media headlines, 2006 Fears over fraud as VAT receipts slump Guardian April 2006 VAT criminals may force tax rises as scams near £30bn Guardian July 2006 Customs officers foil VAT fraud BBC news Sept 2006

  17. Ongoing work • We continue to produce monthly estimates of the impact of the fraud for the OTS, BoP and Eurostat trade data • We monitor changes in the pattern of trade • commodity • country

  18. Lessons Learnt • Need to continually monitor changes • Close links between SATU and Customs important • Conflicting requirements • Use of a range of data

  19. If you want more information please contact:sandra.tudor@hmrc.gsi.gov.ukandrew.kochen@hmrc.gsi.gov.uk

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