Talk:Missing trader fraud

Untitled
A first attempt at this.

it's not a tricky fraud, but hard to describe. I've taken the basis for it from the case cited in the text, but I think it needs cleaning severely.

LeeG 01:29, 16 May 2006 (UTC)

I've rewritten it in a better way, I think, have added a redirect from carousel fraud. I don't know how to cite references, the main reference for this is the case cited in the article. Also put in US$ equivalents (based on 1.75USD to 1GBP. NOTE THE BILLION REFERRED TO WILL BE A UK BILLION, AS IN A MILLION MILLION. LeeG 19:10, 27 May 2006 (UTC)


 * No, it won't be a million million: the British government billion has been 1,000,000,000 since the 1960s. Morwen - Talk 11:35, 22 September 2006 (UTC)

References inserted at bottom of article. LeeG 21:25, 31 May 2006 (UTC)

One slight thing...
@Furthermore the same telephones can be used again and again going through the various buffers, each pass around the "carousel" bringing reclaimed VAT to the last buffer in the chain.:

Actually, although the amount of money being made through this scheme is equal to the amount of money reclaimed by the last buffer, this is not the place where the money is made. The last buffer has the same bottomline no matter whether it's part of this scheme or not. In fact the last buffer can be a legitimate business, and this has happened in the past. It got really nasty, because customs were onto the scheme and the business got its taxrefund denied and became insolvent (usually the profitmargin of such a business is very low compared to the total money throughput). However the business in question did not profit from any ongoing scheme.

The money is made by the first importer and the other buffers, who don't pay their taxes. Normally, the first importer would get paid 1292,500. From this 1000,000 goes to the French exporter, leaves 292,500. 192,500 goes to HM Treasury, leaves 100,000. Of course we couldn't sell our mobile phones at a higher price without adding value ourselves (otherwise the first legitimate company in the chain would be unlikely to cooperate, as it could get a better deal elsewhere). Say we lose 90,000 on glossy consumer-ready packaging or something. Our profit: 10,000, a tip where getting for being kind enough to do the administration of the whole affair.

Suppose we're part of the scheme, and instead of paying VAT, we do a runner. Our profit would then be 929,500 - 90,000 = 202,500. E presto, 192,500 created out of thin air.

Of course if the last buffer is illegit, and we've got a likewise illegit foreign company, we could conspire to not really add value at all (until we get ready to ditch the mobiles) and just send it through the carousel again and again, repeatedly charging VAT but not sending it to HM Treasury. Even in this scheme the money is not made at the last buffer, which may even be innocent still, as long as our conspirators manage to hide the fact from the last buffer that it's buying and selling the same mobile phones again and again. Shinobu 01:41, 17 July 2006 (UTC)

Good point, I have removed the specific reference to the last company LeeG 01:56, 18 July 2006 (UTC)

There is another point to add to this...

Imagine something cost at first import 100€. The company who imports it sells it to another EU company at 105€. Taking as example Italy, that has a high VAT (20%), you can sell it at 126€ VAT included minimum to the local distributor. This involves making a 21€ profit (if you abscond the VAT). But, to sell, you need to do it at 90-95€ (108-114€ VAT included), because the direct import price is 100€, and many companies would prefer to buy from direct importers. By doing this you are actually dropping the price of the product. This product might be sold to an exporter for 92-97€ (110.4-116.4€), and then exported for 95-100€ (no VAT cause it is an export). By doing this, the importer absconded between 8-14€, the middle guy 2€ and the exporter 3€. The products can be resold again by the same price, over and over... By doing this, the local distribution prices in Europe are lower than elsewhere, and that made the market closed for many companies who didn't want to go into the carousel - basically, it meant that to sell, you had to find the person who was absconding, otherwise you would be out of price. One way to deal with this was to offer limited warranties on products, by example, limiting the availability of the warranty only to products sold through official partners. This proved to be very unsuccessful, as the market steered away from these products. The companies who most won with this market, in the computer business, where the ones who offered global and direct-to-the-manufacturer warranties. As most of the goods passed through "ghost companies", it was impossible for some companies to get RMA services for damaged goods. —Preceding unsigned comment added by Papatodas (talk • contribs) 09:19, 4 September 2008 (UTC)

Stopgap?
The BBC says that current inter-EU-memberstate VAT-legislation was originally intended to be a stopgap, a transitional system until a permanent VAT-system was implemented, and that this stopgap is what makes this fraud possible.

The BBC also says that it's (among others) Britain that blocks a new system because it want's to keep control of its own VAT-tarifs, even though HM Treasury loses enormous amounts of money this way. Shinobu 01:16, 18 July 2006 (UTC)


 * You're right, the current common system for the taxation of the intra-Community ciculation of goods is a transitional one. It was in principle intended to cover the period from 1st January 1993 to 31 December 1996.  But since the Member States have been unabable to reach an agrement on a defintive VAT system for the intra-Community exchanges of goods, the transitionnal systems is still in use and will probably remain in use for many years. --Lebob-BE 01:43, 28 November 2006 (UTC)

No such thing as authority or not, doesn't matter. — Preceding unsigned comment added by Toganicp (talk • contribs) 02:25, 11 October 2018 (UTC)

Assessment
See Talk:Missing_trader_fraud for assessment reasons. They can be hard to spot! 158.180.64.10 (talk) 15:42, 23 November 2007 (UTC)

contra-trading
I'm thinking about adding contra-tradinging to this but in doing so clearly delineate carousel fraud from simple MTIC fraud using subheaders.EECavazos (talk) 04:10, 11 May 2008 (UTC)

Dubious example
We have the following example used to illustrate the point:

"Consider a trader based in the UK. He buys from France a consignment of mobile telephones for £1,000,000. He pays the French telephone manufacturer for the goods. The goods are then shipped to a dock in the UK. No VAT is charged on that shipment. The trader now sells those telephones to a conspirator, for £1,100,000. He charges 17.5%VAT (as is customary in the UK) and the conspirator sends £1,292,500 (being the price of the goods plus the tax) to the trader. This conspirator then sells the goods to a third conspirator for £1,200,000, charging VAT on that sale. The third conspirator pays £1,410,000 to the second. This may continue for many conspirators; however three will suffice for an example. The third trader now sells the telephones to a German company, which may well be innocent. No VAT is charged, and the sales price of £1,500,000 paid by the German company without VAT. So far the conspirators have made a profit of £500,000 perfectly legitimately on buying and selling mobile telephones."

So the conspirators have the means and contacts to buy with £1,000,000 (no VAT) and sell with £1,500,000 (no VAT). Then why bother with the fraud? Why doesn't the importer just export the whole damned thing with £1,500,000 (no VAT), and be done with the whole thing? I'm by no means an expert, but this doesn't sound logical to me at all -- I suspect the actual fraud must happen within the destination country, so that the final buyer, the legitimate one, does pay VAT which is then withheld. If the final, legitimate buyer doesn't pay VAT, then there's really no actual fraud (technically the papers may not be in order, I give you that, but nobody would really get ripped off). --Gutza T T+ 11:26, 24 November 2008 (UTC)


 * Me again. I had to first read a government document explaining how this works, then came back and re-read that section several times before it made sense -- which it does, after all. But it's poorly explained, in such a manner that you can only understand what it means if you already know what it should mean. On one hand, there are too many details leading to the third paragraph in the explanation which should finally make the point -- but doesn't deliver any punch, so you tend to gloss over if you don't know that's the actual fraud ("When the last business in the chain collects £210,000 on the export, all of the businesses can vanish, £192,500 better off at the expense of HM Revenue and Customs.") But overall I think the most misleading part of the example is the significant legal profit being made (from 1,000,000 to 1,500,000). --Gutza T T+ 12:22, 24 November 2008 (UTC)
 * The fact is that within the framwork of the intra-Community trade, i.e. goods that are sold and dispatched from one EU Member State to another one, the buyer in the country of arrival does not pay the VAT (if he is a VAT registered business - for private individuals, it is another story) or better said, his intra-Community acquisition is subject to revrse charge. In other words, he has to compute the VAT due on the purchase and to report it as VAT due in his VAT return, but meanwhile he can also put an identical amount as VAT deductible in the same VAT return.  This means that the amount of VAT due is settled against the VAT deductible in the same VAT return.  This means that the buyer has formaly paid the VAT due on the purchase but there is no cash-flow effect.  In fact there is no fraud in the destination country, but only in the intermediary country like the UK in the example at thand. --Lebob-BE (talk) 12:30, 24 November 2008 (UTC)
 * You're right, of course, and the article does explain that, in a convoluted way. But take a look at this report (page 9), isn't that crystal clear, compared to what we have? In particular the comment associated with Company D clarified everything for me ("In effect reclaims the VAT not paid by B, and crystallises the revenue authority’s loss.) --Gutza T T+ 12:53, 24 November 2008 (UTC)
 * Well this clearly confirms what I have learned during my 30 years VAT experience: for explaining and understanding VAT technical issues a small scheme is usually much more effective than a long written explanation. :) --Lebob-BE (talk) 16:06, 24 November 2008 (UTC)

VAT at 17.5%
VAT has recently changed to 15%, don't know how long this will last, but it might be an idea to change the example to suit this. I'll do it if I have time. (86.137.166.180 (talk) 20:06, 21 January 2009 (UTC))

Illustration
I made an Illustration from the Nl version, the En translation comes from, but we are both not native English speaker, so something could be be checked and improved. → User: Perhelion 15:36, 22 January 2016 (UTC)

Assessment comment
Substituted at 00:12, 30 April 2016 (UTC)

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