VAT compliance gap due to Missing trader intra-community (MTIC) fraud

Revenues generated by Value-Added Tax (VAT) play an important role in the budgets of European Union (EU) Member States (MS) and the EU; as VAT resource accounts for around 10% of EU own resource revenue and around 26% of MS’s tax revenue. Tax fraud, evasion and avoidance reduce these revenues, and undermine the tax system, affecting the principles of fair taxation and fair competition between companies. Reflecting the importance of these issues, a new Fiscalis Project Group led by Italy has been set up as part of ongoing work under the Tax Administration EU Summit (TADEUS). One of the key areas of focus for the Fiscalis group is the VAT compliance gap that occurs due to Missing Trader Intra Community (MTIC) fraud and e-commerce fraud.

MTIC fraud is conducted by organised criminal groups, and previous estimates suggest that MTIC fraud is producing large revenue losses for MS . However, up to date estimates with more robust methodologies are needed to assess the evolution of this issue. E-commerce fraud occurs during the purchase and supply of goods conducted on the internet or other online methods. There are relatively less developed methodologies to robustly measure the scale and magnitude of types of e-commerce VAT fraud. Nonetheless, indications of the magnitude of lost revenue appear sizable, for example, the Commission (2016) estimated that between €2.6 - €3.8 billion of VAT revenue was lost from cross-border e-commerce alone in 2013. Despite several changes to the (import) VAT landscape since 2013, most significantly the VAT e-commerce package and the linked removal of the €22 VAT de minimis threshold, we still anticipate significant levels of e-commerce non-compliance.

The purpose of the study is to identify, agree on and potentially implement a common methodology for the estimation of the VAT compliance gap due to MTIC fraud and e-commerce fraud. The intention is for this methodology to produce estimates that are comparable between EU MSs and highlight characteristics that are of importance to MS tax authorities. This will be achieved by:

1. Identify, systematising and evaluating methodologies to estimate the VAT compliance gap due to MTIC fraud and e-commerce fraud based on a predetermined set of bespoke evaluation criteria;
2. Developing and testing the feasibility of a common methodology to calculate such estimates, including an assessment of the limitations of any proposed methodology; and,
3. If decided feasible and desirable by the contracting authority, applying the chosen methodology in order to estimate components of the VAT compliance gap, namely VAT compliance gap due to MTIC fraud and e-commerce fraud.

Experts: Grzegorz Poniatowski (CASE), Adam Śmietanka (CASE), Aleksandra Sojka (CASE), David Anderson (PwC), Rosalind Piggot (PwC), Simon Loretz (WIFO)

Sponsor: Directorate-General Taxation and Customs Union (DG TAXUD)

Project leader: CASE – Center for Social and Economic Research

Partners: Austrian Institute of Economic Research (WIFO), PricewaterhouseCoopers (PwC),