Measures to tackle Missing Trader Intra-Community fraud in the VAT system : a Maltese perspective

Abstract

The current European cross-border VAT arrangements could need modification or replacement in order to respond to the consistent systematic attack on government's revenue due to Missing Trader Intra-Community (MTIC) fraud. However, acting in response to such fraud can bring into being fundamental changes. At the core of the discussion lies the concept of zero-rating supplies between Member States (MSs) through the reverse charge mechanism. It is argued that the system is inherently defective or its implementation is flawed. From this imperfection arises an array of known different forms of missing trader frauds. This calls upon MSs to revamp their discussions to explore other possible cross-border mechanisms. The collection of alternative cross-border arrangements outlined can have several different implications on other issues. Proposals for structural VAT changes focused on four substitute approaches being an Origin System, Reverse Charge Accounting, Flat Rate Origin System, Viable Integrated VAT and a Destination System. The dissimilar arrangements are comparatively examined by their features and suitability at a European dimension with a practical view to implementation in Malta as an EU Member State (MS). The latter is followed by a factual review of the current developments in the Maltese scenario with respect to MTIC fraud. The study is an attempt to contribute towards the current debate on the appropriateness of measures to tackle MTIC fraud through changes in the VAT legislation from a Maltese perspective.