A Strategic Approach to Tackling VAT Losses Case Study

A Strategic Approach to Tackling VAT Losses - Case Study Example That means you do not have to worry about importing them. You also do not need documents which are necessary for importing goods. These reasons are enough for you to accept the proposal given to you. But before coming to any conclusion let me caution you that there can be some limitations in the proposal which need to be taken care of. The most important hindrance in your way of accepting the proposal can be what is termed as the 'carousel' or 'missing trader fraud'. Now what is this 'carousel' or 'missing trader fraud' all about For explaining this, we need to elaborate further the exhibit-1. We will get a different picture which is shown in exhibit-2(Andy Leggett, 2006) given below. The MTIC fraud is explained below for your convenience. Before I can tell you something about carousel fraud and its various implications, let us have a look at missing trader intra community (MTIC) fraud because carousel fraud is a type of MTIC fraud. In MTIC fraud, a trader imports goods to one state (say UK) from EU member states without paying VAT and sells these goods to other trader after which the first trader goes missing. The first trader, however, has to pay the VAT. This type of VAT fraud was highlighted in November 2001 in the HM Treasury and HM Customs and Excise paper, Tackling Indirect Tax Fraud, Exhibit-2 that was published as part of the 2001 Pre-Budget Report. In this paper, MTIC fraud was described as follows: "VAT intra-Community missing trader fraud is a systematic criminal attack on the VAT system, which has been detected in many EU Member States. In essence, fraudsters obtain VAT registration to acquire goods VAT free from other Member States. They then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities. The fraud is usually carried out very quickly; with the fraudsters disappearing by the time the tax authorities follow up the registration with their regular assurance activities." Thus in this type of fraud, a trader can disappear easily without paying VAT which means a loss for the states' economy. This fact is shown in the exhibit-2 below. In this exhibit it can be observed that there is a tax loss of 157,500 due to non payment of VAT by Trader B. One important thing to be mentioned here is that Intra-EU trades in goods statistics rely on the VAT forms which are a correct record of trade transactions. MTIC fraud affects the measurement of trade in goods through the role of the missing trader. There are two types of MTIC fraud. These are acquisition fraud and carousel fraud. Acquisition fraud is where the goods are imported from the EU into the UK by a trader who then goes missing without completing a VAT return or Intrastat declaration. The 'missing trader' therefore has a VAT free supply of goods, as they make no payment of the VAT monies due on the goods. He sells the goods to a buyer in the UK