Carousel Fraud (MTIC)

Many countries do not charge VAT on exports or on sales between certain trading partners, but they let a business reclaim the VAT it paid on purchases. Fraudsters use this. A missing trader buys goods tax-free from abroad, sells them at a normal VAT-inclusive price through a chain of buffer companies, and vanishes without paying the tax. The last firm in the chain exports the goods and claims a refund, and the goods may return to the start for another turn. The cycle can repeat within weeks. It is often called missing trader intra-community fraud, and fraudulent claims for input tax credit are a related but broader problem, since many involve no carousel. Tax authorities counter it with reverse charge rules, checks on new registrations and denial of refunds to knowing participants. Genuine traders caught in a chain can lose their refunds if they knew or should have known of the fraud, so supplier checks are routine.

A tax authority notices a newly registered trader importing 5,000 mobile phones and selling them within a week. The seller never files a return. Further buyers in the chain pass the phones on and an exporter claims a large refund. Investigators find the same phones moving across the border several times and refuse the refund.