The Impact of Missing Trader IntraCommunity Fraud on Trade Statistics

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

• Sandra Tudor
• Head of Statistics and
• Analysis of Trade Unit

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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

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A Simple MTIC carousel model2 countries
950,000 VAT
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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
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• Original work for
• Balance of Payments
• 2002 - July 2003

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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

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The adjustments

• UKs 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

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• Next Steps
• August 2003 to Feb 2005

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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

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Project 2

• Investigated how best to incorporate the
  adjustments for 1999 2004 into HMRCs Overseas
  Trade Statistics
• Uses 3 month rolling average
• Second joint article published Feb 2005

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• Further developments
• Non-EU trade

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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
(C) UK Buffer Trader
(D) UK Buffer Trader
920,000 VAT
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• Third Project

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Estimates of missing trade (EU arrivals)
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New Issues

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

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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
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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

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Lessons Learnt

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

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If you want more information please
contactsandra.tudor_at_hmrc.gsi.gov.ukandrew.koche
n_at_hmrc.gsi.gov.uk