Missing Trader VAT Fraud in the EU: Evidence from Cross-Border Audits

• In Event: Tax Enforcement, VATs, and Information Exchange

Abstract

Missing Trader VAT Fraud represents a major challenge in the European Union, accounting for more than half of the total VAT gap and costing governments an estimated €50 billion annually. This paper leverages unique audit data on firm-to-firm cross-border transactions across all EU Member States to analyze the incidence of this fraud and to assess the effectiveness of audits compared to non-audit countermeasures. First, we document the scope of detected missing trader fraud on new levels of granularity, disaggregating the fraud level by country pairs, industries, and firm characteristics. Second, using merged data on firm balance sheets, we examine the impact of audits on firm-level outcomes. Third, we exploit the staggered adoption of the reverse charge mechanism—a major EU-endorsed but potentially distortionary anti-fraud tool—to evaluate its effectiveness. Our findings provide guidance for EU policymakers seeking to combat VAT missing trader fraud, and offer broader lessons for the design of tax enforcement regimes in contexts where multiple instruments are available.

Author

• Zareh Asatryan, ZEW