VAT compliance gap due to Missing Trader IntraCommunity (MTIC) fraud : final report : phase 1

Missing Trader Intra-Community fraud (MTIC fraud) is a type of VAT fraud under which a fraudulent trader supplies goods and services to other businesses, collects the tax due on the supply from their customers, and disappears without ever remitting it to the tax authorities. This phenomenon deserves special attention - revealed cases for fraud and different studies, despite varying assessment of the exact scale, are in consensus that it has made up a significant share of the overall VAT compliance gap. This study reveals that the available analytical methods and data sources create a potential for estimating the scale of the MTIC gap in the EU and EU Member States. Such estimates could complement the estimates of the overall VAT compliance gap published every year by the European Commission. Given the results of the assessment of available methodologies and experimental work conducted herein, it is shown that out of methods based on publicly available data the methodology using Intra-Community trade data appears best suited for such a calculation. This method, reliant on the assumption that at some point every fraudulent transaction leaves a trace in the trade data, could be implemented with the use of sophisticated econometric techniques and machine learning algorithms. This approach is recommended as the baseline calculation method for the following phase of the study. It is also recommended to explore and, if possible, implement another promising approach that is based on Member State administrative data, namely granular data from VIES (VAT Information Exchange System) and VAT returns.