VAT compliance gap due to Missing Trader IntraCommunity (MTIC) fraud - Final report: phase 1
The phenomenon of Missing Trader Intra-Community fraud (MTIC fraud) stands out as a significant form of VAT fraud. In this scheme, a fraudulent trader sells goods and services to other businesses, collects the VAT from customers, and then vanishes without remitting it to tax authorities. Despite variations in assessments of its exact scale, both revealed cases of fraud and various studies concur that MTIC fraud constitutes a notable portion of the overall VAT compliance gap.
This study sheds light on the potential for estimating the MTIC gap in the EU and its Member States through available analytical methods and data sources. These estimates could complement the yearly published estimates of the overall VAT compliance gap by the European Commission.
After assessing available methodologies and conducting experimental work, it becomes evident that the methodology utilizing Intra-Community trade data appears most suitable for this calculation among publicly available data-driven approaches. This method operates under the assumption that every fraudulent transaction eventually leaves a trace in trade data. Its implementation could leverage sophisticated econometric techniques and machine learning algorithms. Therefore, this approach is recommended as the baseline calculation method for the next phase of the study.
Additionally, it is advisable to explore and, if feasible, implement another promising approach based on Member State administrative data. This alternative approach relies on granular data from VIES (VAT Information Exchange System) and VAT returns, offering potential insights into MTIC fraud.
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This report was written by a team of experts from CASE (Center for Social and Economic Research, Warsaw) directed by Grzegorz Poniatowski, and composed of Adam Śmietanka, Agnieszka Skowronek and Aleksandra Sojka. Research assistance was provided by Krzysztof Orzechowski.
