The Mechanics and Effects of MTIC Fraud

Diana Maria Calmac

Student thesis: Master thesis


While VAT is functioning very well in the domestic settings, its application beyond the borders of each Member State can be flawed and can result in unwanted fraud. One of the most common types of cross-border fraud is MTIC (Missing Trader Intra Community). Within this type of fraud, if the same supplies travel multiple times across the same borders through the same supply chain then the more specific name for this MTIC fraud is carousel fraud. It is important to acknowledge the fact that MTIC fraud is not restricted only to goods but it can also affect tradable services.Within the transitional destination-based VAT collection principle, it is very difficult for the authorities to keep track of all the transactions happening across their borders. Therefore, several zero-rated transactions and their correspondents may lead to VAT evasion by enabling companies to receive high VAT amounts from the purchasers and then to disappear before remitting these amounts to the state authorities. It is very difficult for the tax authorities to estimate precisely the VAT losses due to MTIC, but they are noteworthy and they lead to heavy VAT losses.This thesis sets to determine methods of detecting, avoiding and fighting MTIC fraud. First, several significant Court cases are meant to highlight how MTIC takes place in practice and how the Courts look upon these facts in order to emit their decisions. Further on, numerous solutions against MTIC fraud are clearly detailed and assessed from an advantages / disadvantages outlook. The most prominent ones are the reverse charge, the joint and several liability and the knowledge test. In addition to these, several technological alternatives such as RTvat, VLN and D-VAT are also taken into consideration. To end this series of solutions to MTIC fraud in the current VAT system, a couple of alternative VAT regimes such as VIVAT and CVAT are also detailed and analyzed.The concluding remarks are that MTIC has been treated very seriously both from the part of the tax authorities and from the part of the European Union. The solutions against MTIC fraud are plentiful but their downsides are that they might generate high implementation costs, might impose high administrative burdens or might even move this fraud into other categories of goods once applied to the affected cases.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2012
Number of pages87