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

The Impact of Missing Trader Intra-Community Fraud on Trade Statistics. Sandra Tudor Head of Statistics and Analysis of Trade Unit. Missing Trader Intra-Community Fraud. Increasing problem since the introduction of the single market

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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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