VAT Carousel Fraud

About VAT Carousel Fraud

VAT carousel fraud, also called missing trader fraud, exploits the zero rating of intra EU trade. A trader imports goods VAT free from another EU country, sells them with VAT to a buyer, and disappears without remitting the VAT. The goods may pass through multiple traders, each charging VAT, before being exported again, starting a new cycle. Carousel fraud costs EU governments an estimated 50 billion annually. The most common goods involved are electronics, particularly mobile phones and computer chips, which have high value to weight ratios. The UK was particularly affected before Brexit. EU member states have implemented reverse charge mechanisms for certain goods to combat carousel fraud, shifting the VAT liability from the supplier to the buyer. Carousel fraud demonstrates how VAT design can create opportunities for sophisticated fraud.