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

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 Missing Trader Intra-Community Fraud

A Simple MTIC carousel model 2 countries £ 950,000 + VAT (‘A’) EU Supplier (‘B’) UK Missing Trader (‘C’) UK Buffer Trader £900,000 + VAT (‘D’) UK Buffer Trader £ 920,000 + VAT (‘E’) UK Broker Tax Loss - £157,500 £970,000 - VAT Nil £1,000,000 - VAT Nil

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

Original work for Balance of Payments July 2003

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 Impact on Trade Statistics

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

Next Steps August 2003 to Feb 2005

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

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

Further developments Non-EU trade

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

Third Project

Estimates of missing trade (EU arrivals)

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

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

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 Ongoing work

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

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