The concept of Tax Gaps, Report III: MTIC Fraud Gap estimation methodologies

Abstract

VAT is an important tax, contributing to about one fifth of total tax levied by Member States. The EU Member States are missing EUR 147 billion or about 12% of the VAT revenue (2016 VAT Gap). A part of the loss can be linked to fraud and evasion; the challenge for the Fiscalis Project Group was how to identify the part of the VAT gap related to VAT fraud and evasion. As VAT fraud and evasion can be committed in various ways, the scope was limited to the Missing Trader Intra Community (MTIC) fraud. The report is part of a series including "The Concept of Tax Gaps – Report on VAT Gap Estimations") and "The Concept of Tax Gaps - Report II: Corporate Income Tax Gap Estimation Methodologies". The Report explains the mechanism of VAT fraud, describes the VAT fraud types, insisting on the MTIC fraud; reviews the MTIC fraud literature; describes VAT fraud estimation methodologies; lists the possible data sources for the estimation of VAT fraud; and reflects on the possibility of a European approach.