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Missing trader fraud (also called missing trader intra-community, MTIC, or carousel fraud) is the theft of Value Added Tax (VAT) from a government by organised crime gangs who exploit the way VAT is treated within multi-jurisdictional trading where the movement of goods between jurisdictions is VAT-free. This allows the fraudster (person who commits fraud) to charge VAT on the sale of goods, and then instead of paying this over to the government’s collection authority, to simply abscond, taking the VAT with him. The term “missing trader” refers to the fact that the trader goes missing with the VAT. “Carousel” refers to a more complex type of fraud in which VAT and goods are passed around between companies and jurisdictions, similar to how a carousel goes round and round.

In the European Union (EU) the European Union Value Added Tax (“EU VAT”) allows merchants to charge VAT on the sale of goods when they sell goods to another member state.

In brief, a business that buys and sells goods charges VAT to those to whom it sells (‘output tax’), and is charged VAT by those from whom it purchases (‘input tax’). It can reclaim (subject to various rules) the VAT it pays, and so passes to the Government the net VAT it collects (being output tax less input tax). In this way, a business acts as a tax collector on behalf of the Government.

Within the EU VAT, member states charge VAT at differing rates on goods as a form of indirect taxation. All exports of goods however are tax-free. This leads to the situation where an exporter will be able to reclaim VAT from the Government, as it will have been charged VAT by the business from which it purchased the goods, and will owe the Government nothing because it has sold the goods tax free.

 

Missing trader fraud

The simplest missing trader fraud is where a fraudster imports some goods. The goods were zero-rated in the country of origin, and VAT on the goods should be paid in the country where they have been imported. However, the fraudster charges a buyer the price of the goods plus VAT, but doesn’t pass on the VAT to the Government. He becomes a “missing trader”. Because the goods were zero-rated for export, the Government has lost the entire VAT that should be paid on the goods, rather than the fraction of it that would be paid for just one stage of the production process. This situation, where the goods are made available for consumers in the importer’s home market is often known as ‘acquisition fraud’.

 

Carousel fraud

The imported goods may be sold from one trader to another, and eventually exported. When this happens, the exporter can claim back from the government the whole of the VAT that should have been paid on the goods (as exports are zero-rated). However, if there is a “missing trader” further back in the chain of sales, part of this VAT was never paid in the first place. Hence, there is a loss to the government.

This can repeat many times, with the goods going round in a ‘carousel’.

 

Ralli LLP have a dedicated and highly experienced team of criminal law solicitors, specialising in fraud cases across the UK, for both businesses and individuals. Our criminal law solicitors’ based in Manchester and London are here to help. For any further information or advice contact a member of the team on 0161 6150655.