VAT Fraud and Evasion: What Do We Know, and What Can Be Done?

35 Pages Posted: 21 Feb 2007

See all articles by Stephen Smith

Stephen Smith

University College London - Department of Economics

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Date Written: February 2007

Abstract

Like any tax, the VAT is vulnerable to evasion and fraud. But its credit and refund mechanism does offer unique opportunities for abuse, and this has recently become an urgent concern in the European Union (EU). This paper describes the main forms of noncompliance distinctive to a VAT, considers how they can be addressed, and assesses evidence on their extent in high-income countries. While the practical significance of current difficulties in the EU should not be over-stated, administrative measures alone may prove insufficient to deal with them, and a fundamental redesign of the VAT treatment of intra-community trade required. The current difficulties in the EU largely reflect circumstances that would not apply in the United States.

JEL Classification: H20, H21, H22

Suggested Citation

Smith, Stephen and Keen, Michael, VAT Fraud and Evasion: What Do We Know, and What Can Be Done? (February 2007). IMF Working Papers, Vol. , pp. 1-33, 2007. Available at SSRN: https://ssrn.com/abstract=964339

Stephen Smith

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
44-171-504 5882 (Phone)

Michael Keen (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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