 Do more harm than good? The optional reverse charge mechanism against cross-border tax fraudWojciech Stiller and Marwin Heinemann The Quarterly Review of Economics and Finance, 2024, vol. 95, issue C, 61-84 Abstract: The so-called ‘missing trader intra-community’ (MTIC) fraud causes enormous losses in value-added tax (VAT) revenue. The fraudsters take advantage of the zero-rated cross-border supplies within the European Union (EU) and resell the goods domestically without paying the received VAT to the tax authorities. One of the most prominent measures to combat this scheme is the optional reverse charge mechanism (RCM) that shifts the VAT liability from the supplier to the customer in business-to-business transactions. Using asymmetries in international trade (trade data gap, TDG), we identify the fraud-reducing effect of the RCM. For the observation period (2003 – 2019) within the EU, we quantify this effect in terms of the VAT revenue between 7.5 and 7.7 billion euros using a midpoint estimate. Additionally, we are the first to provide empirical evidence of a harmful fraud relocation from RCM countries to non-RCM countries. This explains the domino effect of RCM introductions in the EU and calls for a unified approach to VAT fraud. Keywords: Tax Evasion; International Trade; MTIC Fraud; Reverse Charge Mechanism; VAT Fraud; Trade Data Gap (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:95:y:2024:i:c:p:61-84 DOI: 10.1016/j.qref.2024.02.007 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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