American VAT – The Carousel Fraud Threat: Will the EU Show the US the 'Way Forward'

6 Pages Posted: 13 Aug 2013  

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Date Written: August 13, 2013

Abstract

On Thursday, March 29, 2007 the European Commission, Directorate-General for Taxation and Customs Union, will host a one-day Conference on Fiscal Fraud – Tackling VAT Fraud: Possible Ways Forward. The conference is based on the Communication of May 31, 2006 explaining the need to develop a coordinated strategy to improve the fight against fiscal fraud. This paper indicates that the EU examination of carousel fraud points the way forward for advocates of a US VAT as well.

About 40% of EU VAT fraud appears to be 'missing trader intra-community' (MTIC) or carousel fraud. The best estimates of EU losses to carousel fraud are put at 23 billion euros annually. UK studies put domestic losses from carousel fraud at 2.98 to 4.47 billion euros.

Fraud concerns understandably resonate deeply among American advocates of a federal level VAT in the US. It needs to be taken into consideration that inserting a national credit-invoice VAT into the US fiscal fabric would be to set out the welcome mat for an American carousel fraud, as well as the more traditional VAT frauds. The vulnerability of a US VAT to carousel fraud is a direct result of the American tendency for national, state and local tax systems to 'piggy backing' on one another is taken into account.

Keywords: VAT, MTIC, carousel fraud, American VAT, piggy-back

JEL Classification: H26, H29, K34

Suggested Citation

Ainsworth, Richard Thompson, American VAT – The Carousel Fraud Threat: Will the EU Show the US the 'Way Forward' (August 13, 2013). Boston Univ. School of Law, Law and Economics Research Paper No. 13-37. Available at SSRN: https://ssrn.com/abstract=2309426 or http://dx.doi.org/10.2139/ssrn.2309426

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

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Boston University - School of Law ( email )

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