The First Real-Time Blockchain VAT - GCC Solves MTIC Fraud

37 Pages Posted: 26 Jul 2017

See all articles by Richard Thompson Ainsworth

Richard Thompson Ainsworth

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

Musaad Alwohaibi

University of Florida Levin College of Law

Date Written: July 24, 2017


Following years of study the Gulf Cooperation Council (GCC) appears ready to adopt the recommendations of the International Monetary Fund (IMF) and put in place a tax system that will stabilize revenue. A value added tax (VAT) and corporate income tax (CIT) are considered. A VAT Framework Agreement, that functions like the VAT Directive in the EU, has been agreed.

Although new, the GCC VAT is very worthy of attention. From a tax policy perspective, it is making notable improvements to EU VAT design. The GCC VAT is (potentially) the world’s first real-time, blockchain-secured, multi-jurisdictional VAT. This is a remarkable accomplishment, and it indicates that the GCC has learned and applied a number of global VAT and technology lessons.

One of the most visible flaws in the EU VAT is its openness to cross-border frauds – both intra-community and extra-community frauds. Missing traders are the problem. This is what the GCC has corrected.

The perpetrators of tax fraud are not at all concerned about the specific tax law that they are abusing; they are looking solely at revenue streams, and the probability that they will get caught. As a result, when a fraudster finds a single activity that attacks multiple tax systems, it becomes a favored vector, and we find a nexus of frauds clustered around a unitary fraud operation.

The government’s perspective is just the opposite of the fraudster’s. A focus on one kind of tax fraud may well resolve many more kinds of fraud. This appears to be what will happen as the GCC VAT is rolled out after January 1, 2018. The example considered in this paper involves the illicit cigarette trade. By resolving missing trader frauds, the GCC may (unintentionally) make a serious dent in the illicit cigarette trade and the theft of cigarette tax revenues (a manufacturer’s tax), precisely because the operation of the GCC VAT will increase the cigarette fraudster’s probability of detection.

A “tax fraud nexus” that could easily be replicated in the GCC (if an unmodified EU-style VAT were to be adopted) can be seen in the Danish chocolate frauds. These frauds were examined in the first program of the three part Danish documentary, How Fraudulent Denmark (Sådan Svindles Danmark). The documentary appeared on DR TV January 12 and 25, and February 1, 2016. The fraud vehicle was candy that was re-sold by traders who purchased expired chocolate from the Mars Denmark Company. The primary fraud, re-packaging and then re-selling expired chocolate was carried out in a manner that attacked two tax regimes – the chocolate tax (a manufacturer’s tax) and the VAT (a consumption tax). This scheme funded organized crime; a different scheme examined in the second program of the documentary funded Islamic terrorists. The GCC seems to be very aware of the missing trader fraud discussed in the documentary. Technology innovations that will suppress it are set out in Article 71 of the GCC Framework Agreement. No other VAT Framework or VAT Directive has such a provision.

One of the tax-related side benefits from resolving missing trader fraud in the GCC VAT will likely be the suppression of cigarette smuggling, and the recovery of important revenues from the cigarette tax, which has been raised to a 200% levy. If Denmark had a VAT provision similar to Article 71 it would likely solve the VAT and Chocolate Tax frauds considered in the documentary.

Keywords: GCC, VAT, MTIC, MTEC, Article 71, Cigarette fraud, Chocolate Tax fraud, Blockchain, Missing traders, Sådan Svindles Danmark, DR TV, Terrorist funding, Denmark, Saudi Arabia, UAE

JEL Classification: F10, K10, K14, K34, K39

Suggested Citation

Ainsworth, Richard Thompson and Alwohaibi, Musaad, The First Real-Time Blockchain VAT - GCC Solves MTIC Fraud (July 24, 2017). Boston Univ. School of Law, Law and Economics Research Paper No. 17-23, Available at SSRN: or

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Musaad Alwohaibi

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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