## _wp0731

## Source details

**Canonical URL:** [_wp0731](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0731.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0731.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0731.pdf.json)

---

### Major findings and context
- VAT widely promoted as effective revenue source; cited claim: “purely from a revenue point of view, VAT is probably the best tax ever invented.”
- Recent concern over VAT revenue losses from evasion and fraud, notably after abolition of internal EU frontiers end-1992.
- European Commission (2004) reports losses from fraud—particularly “carousel fraud”—amounted to 10 percent of net VAT receipts in some member states.
- March 2006: first-ever fall in annual nominal VAT receipts in the United Kingdom attributed by some to fraud.
- High-profile cases: Glasgow businessman netted over $8 million in four months.
- Developing-country example: Sri Lanka reportedly lost about 10 percent of net VAT receipts from a single fraudulent episode.

### VAT design and key technical concepts (Box 1: The Rudiments of VATs Peak)
- VAT characteristic: broad-based tax on commodity sales; registered businesses credit input VAT against output VAT; excess credits refunded.
- Zero-rating: VAT levied at a rate of zero; no tax due on output, but input VAT credit remains and becomes a refund.
- Exemption: no tax due on output and no credit for input VAT—VAT “sticks” on business purchases.
- Destination principle: commodities taxed where consumed; implemented by zero-rating exports and charging VAT on imports; exporters due refunds but this is WTO-consistent and not an export subsidy.
- Invoice-credit VAT: registered traders charge tax on sales and issue invoices enabling buyers to claim credits/refunds; alternative methods: subtraction method (Japan) and addition method at lower government levels (example: Michigan until 2008).

### Types of risks, frauds, and channels of vulnerability
- Zero-rating of exports creates refund flows exploitable in carousel/MTIC fraud.
- Vulnerabilities amplified by informality and corruption in developing countries and by cross-border trade liberalization.
- Fraud typology (shared with RST):
  - Under-reported sales (off-the-books transactions).
  - Failure to register (ghost firms below threshold).
  - Misclassification of commodities (multiple rates/exemptions).
  - Omission of self-deliveries (undeclared owner/employee consumption).
  - Tax collected but not remitted (false accounting, engineered bankruptcy, missing trader frauds).
  - Untaxed imports/resales if border taxation weak.
- Invoice-credit VAT-specific frauds:
  - False claims for credit/refund (forged invoices; example: 44 percent of Netherlands VAT fraud in one investigation).
  - Credit claimed for non-creditable purchases (misallocation between taxed and exempt outputs).
  - Bogus traders (“invoice mills”) issuing invoices solely to enable VAT recovery.

### Box 2 — Equivalence of VAT and RST (simplified numerical example and conceptual distinctions)
- Numerical example:
  - Intermediate output sold to final producer: $10m; final goods sales to public: $15m.
  - VAT rate: 20 percent.
  - Output VAT on intermediate producer: $2m; on final producer: $3m.
  - Input VAT credit to final producer: $2m.
  - Net VAT due: Intermediate $2m; Final $1m.
  - Total VAT revenue under VAT: $3m, equal to 20 percent RST on $15m = $3m.
  - Timing difference: VAT collects some revenue earlier in production chain.
- Key distinctions:
  - Administrative population: VAT may involve more firm types but many small firms excluded by threshold; RST typically targets retailers only.
  - Revenue protection: VAT protects revenue across production stages; RST loses all revenue if final seller not taxed.
  - Timing/cash-flow: VAT can improve government cash flow by earlier collection.
  - “Self-enforcing” claim is limited: businesses' incentives to verify suppliers' tax payments are weak; VAT is partially self-correcting but not fully self-enforcing.
- Design implications summarized:
  - Multiple rates increase misclassification fraud; single non-zero rate common in newer VATs.
  - Higher VAT rates can increase fraud attractiveness and encourage informality; suggests preference for lower rates than otherwise.
  - Exemptions avoid refunds but introduce inefficiencies.
  - Registration thresholds reduce administrative burden; examples:
    - United Kingdom around UKL 61,000 (about $115,000)
    - Lebanon around $100,000
    - Singapore $500,000

### Enforcement, evasion, and rationale for VAT use
- Theoretical case for general commodity tax limited; practical justification rests on administrative practicality and enforceability.
- VAT provides enforcement information (trader turnover) that complements income tax administration and can reduce fiscal exposure to evasion.
- Spreading enforcement risk across multiple taxes can improve welfare versus reliance on a single tax.
- VAT often favored over single-stage RST on enforcement grounds, though perfectly functioning VAT and RST at same rate are revenue- and incidence-equivalent.

### HMRC top-down “VAT gap” methodology and UK top-down results (Tax years 2000–01 to 2004–05)
- Method: compare actual VAT receipts with “theoretical total VAT liability” (VTTL) estimated from national accounts household spending breakdown, adjusted for exemptions, small-firm effective rates, timing lags, and legitimate input-VAT recovery by certain suppliers.
- Key adjustments: deduct sales by firms below registration threshold (effective VAT ~3–6 percent depending on sector); adjust for exempt supplies; timing adjustment ~one quarter; adjust for legitimate recovery by suppliers to government departments and broadcasters.
- HMRC top-down results:
  - 2000–01: Net VTTL £68.5 bn; Net VAT receipts £58.5 bn; Revenue shortfall £10.0 bn; Tax gap 14.6 percent of net VTTL
  - 2001–02: Net VTTL £72.4 bn; Net VAT receipts £61.0 bn; Revenue shortfall £11.3 bn; Tax gap 15.7 percent of net VTTL
  - 2002–03: Net VTTL £76.5 bn; Net VAT receipts £63.6 bn; Revenue shortfall £12.8 bn; Tax gap 16.8 percent of net VTTL
  - 2003–04: Net VTTL £79.9 bn; Net VAT receipts £69.1 bn; Revenue shortfall £10.8 bn; Tax gap 13.5 percent of net VTTL
  - 2004–05: Net VTTL £84.0 bn; Net VAT receipts £72.7 bn; Revenue shortfall £11.3 bn; Tax gap 13.5 percent of net VTTL
- HMRC notes the two most recent years show tax gap ~13.5 percent of VTTL, an annual revenue loss of approximately £11 billion, and views the series as more reliable for changes than absolute levels.
- HMRC bottom-up estimates for 2001–02 (VTTL assumed £70 bn for percentage calculations):
  - Missing trader (MTIC) fraud: Estimated Revenue Loss £1.77–2.75 bn; 2.5–3.9 percent of full-compliance VAT revenues
  - “Artificial” tax avoidance: Estimated Revenue Loss £2.5–3.0 bn; 3.6–4.3 percent
  - Nonregistration for VAT: Estimated Revenue Loss £0.4–0.5 bn; 0.6–0.7 percent
  - General noncompliance by VAT-registered firms: Estimated Revenue Loss £2.5–4.0 bn; 3.6–5.7 percent
  - Total bottom-up estimate: £7.17–10.25 bn; 10.2–14.6 percent of VTTL
  - Comparison: upper end of bottom-up range broadly consistent with 2001–02 top-down estimate of £11.3 billion (15.7 percent of VTTL).

### MTIC / carousel fraud mechanics and numerical illustration
- Core vulnerability: export zero-rating + deferred import payment create refund flows exploitable by missing-trader schemes.
- Simple numeric illustration:
  - Company A (France) exports to Company B (UK) at VAT-free unit price €100 (export zero-rated).
  - UK VAT rate assumed 15 percent.
  - Under deferred payment, B accounts for VAT and sells to C at €115, with €15 shown as VAT; C claims €15 credit.
  - B disappears without remitting €15; D later exports and claims a refund including the unpaid €15; refund to D = €15 in no-markup case.
  - In pure carousel, goods return to France and cycle repeats.
- Generic features:
  - Double-dip fraud: acquisition fraud (missing-trader retains VAT) + export refund (exporter reclaims VAT not remitted).
  - Missing trader must be VAT-registered to exploit intra-EU zero-rating.
  - Buffer firms may be innocent; complex routings and price manipulations used to obscure fraud.

### Evidence on scale, trends, and alternative estimates
- Limited hard public evidence; headline figures often unclear.
- HMRC more recent MTIC estimates (2000–01 to 2004–05) suggest MTIC loss fell to £1.12–£1.9 billion in 2004–05 (VAT gap 1.3–2.3 percent).
- Office of National Statistics adjustments to trade data indicate sharp growth in fraudulent trade: £2.7 billion in 2004, £11 billion in 2005, and £6.5 billion in Q1 2006 alone (Bank of England, 2006, p 23). If maintained through year, would imply fraudulent exports of £26 billion (text truncated in source).
- Separate estimate: 17.5 percent figure associated revenue losses some £4.5 billion — about 5 percent of VTTL — about twice upper bound of HMRC’s missing trader fraud estimate in 2004–05.
- Cross-country “top-down” estimates (Gebauer and Parsche (2003)) — three-year averages:
  - Netherlands: 2.4 (1994–96)
  - Great Britain: 3.8 (1991–93)
  - Denmark: 4.2 (1994–96)
  - Germany: 4.8 (1994–96)
  - France: 8.8 (1991–93)
  - Portugal: 14.2 (1994–96)
  - Belgium: 19.3 (1994–96)
  - Greece: 20.2 (1994–96)
  - Spain: 22.6 (1994–96)
  - Italy: 34.5 (1991–93)
- Temporal patterns:
  - VAT gap fairly stable in most countries across reported years.
  - Sharp increases observed in Germany and the United Kingdom over analyzed periods (Germany: 1.6 percent → 7.5 percent over 1994–96; later methodology suggests 9.5 percent in 2001).

### Econometric findings on determinants of VAT compliance
- Data limitations: small cross-sections impede robust inference.
- Agha and Haughton (1996) — 17 OECD members, 1987:
  - Sample average VAT rate: 15.8 percent.
  - A 1 percentage point increase in the VAT rate would reduce the compliance rate by 2.7 percentage points.
  - Each additional VAT rate reduces compliance by ~7 percentage points.
  - Compliance increases with VAT age and smaller population.
  - No significant impact found for VAT base/GDP, penalty severity, or proportion registered.
- C-efficiency approach caveats:
  - C-efficiency = (VAT revenue / aggregate consumption) / standard VAT rate; equals unity under uniform single-rate, perfectly enforced VAT.
  - Conflates compliance and rate-structure effects.
  - Findings broadly consistent with practitioner presumptions: negative impact of standard rate and range of rates; C-efficiency falls with share of agriculture in GDP; openness appears positively associated with collection, particularly in lower-income countries.
- VAT productivity analyses used to suggest revenue-maximizing rate ~18–20 percent (Matthews and Lloyd-Williams (2000); Matthews (2003)).

### Administrative and anti-fraud measures (operational and structural)
- Operational measures:
  - Tighter registration checks (on-site visits, background checks), guarantees in dubious cases.
  - Joint and several liability rules to hold traders responsible for chain fraud.
  - Improved information exchange between tax authorities (e.g., VIES), noting current lags.
- Targeted measures:
  - Reverse charging: liability on buyer; adopted in UK for vulnerable goods; Austria/Germany proposals with thresholds €5,000 (goods), €10,000 (services).
  - Reverse withholding: buyer remits VAT; common in Latin America/Africa; protects revenue but raises administrative complexity.
  - VAT accounts (distinct bank account for VAT funds): proposed and implemented in Bulgaria; costs and movement toward cash basis noted; Bulgaria reportedly removing system.
  - Compulsory third-party guarantor (“D-VAT”): passes risk to guarantor who requires compensation.
  - P-VAT (goods held until import VAT confirmed/guaranteed): addresses export-zero-rating fraud but reintroduces customs restrictions.
- Radical structural fixes (eliminate export zero-rating):
  - Exporter-rating: intra-Union exports taxed at exporting country rate with revenue transfers to importing country; transaction clearing house or aggregate allocation proposed; incentives and bureaucracy concerns.
  - CVAT (compensating VAT): exports zero-rated then immediately subjected to compensating VAT fully creditable in importing country; treats exports differently from domestic sales.
  - VIVAT: single common B2B rate across domestic and cross-border sales; final sales rates remain national; requires registration checks and revenue allocation/clearing.
- Trade-offs: administrative measures can displace or create new fraud opportunities and increase compliance costs; radical schemes raise tax-sovereignty and political-administration issues.

### Policy implications and recommendations
- Make enforcement central to VAT assessment and design: VAT’s revenue advantages contingent on effective enforcement.
- Coordinate VAT and income tax enforcement to exploit complementary information (e.g., turnover).
- Limit vulnerabilities from export zero-rating through robust controls or structural reform where politically feasible.
- Design best practice features:
  - Prefer single rate, reasonably high registration threshold, limited exemptions.
  - Use simplified/lump-sum schemes for small traders to reduce nonregistration evasion and distortions.
  - Balance prompt refunds against fraud risk: rapid refunds increase refund-fraud vulnerability; slow/refused refunds can turn VAT into a production tax.
- For federal/sub-national contexts (e.g., United States):
  - Lower exports-to-GDP ratio implies smaller structural refund need (example: United States exports-to-GDP 7 percent vs. United Kingdom 17 percent, 2005).
  - A federal VAT avoiding extensive domestic zero-rating and with strong fiscal controls on trade with rest of world would mitigate EU-like border problems.
  - Deep solution to carousel fraud is to fix the VAT chain (CVAT, VIVAT, exporter-rating), but these are politically and administratively demanding.

### Comparative magnitudes and conclusions
- Some UK VAT gap estimates: around 13.5 percent or, in a bad year, nearly 17 percent.
- US personal income tax gap: 13.7 percent (Slemrod, 2006).
- Noncompliance under UK VAT may now be greater than under UK personal income tax but “not of a completely different order of magnitude.”
- Overall judgement: VAT fraud is serious and organizationally sophisticated; many VAT compliance aspects work well; with sufficient administrative will and considered design the EU difficulties can be controlled and a US federal VAT could largely avoid them.

*Source: Excerpt from IMF working paper _wp0731 (PDF chapter/section).*

### 1. HMRC’s “Top Down” Estimate of the United Kingdom VAT Gap,

### 1. HMRC’s “Top Down” Estimate of the United Kingdom VAT Gap, Tax Years 2000–01 to 2004–05

### Major findings and context
- VAT widely promoted as an effective revenue source; cited claim: “purely from a revenue point of view, VAT is probably the best tax ever invented.”
- Recent years have seen a marked increase in concern with VAT revenue losses from evasion and fraud, especially in the European Union after abolition of internal EU frontiers at the end of 1992.
- The European Commission (2004) reports that losses from fraud—most famously, “carousel fraud”—have recently amounted to 10 percent of net VAT receipts in some member states.
- In March 2006 the first ever fall in annual nominal VAT receipts in the United Kingdom was attributed by some to fraud.
- High-profile criminal cases illustrate scale: a Glasgow businessman netted over $8 million in just four months.
- Developing countries also vulnerable: Sri Lanka reportedly lost about 10 percent of its net VAT receipts from a single fraudulent episode.

### VAT design and key technical concepts (from Box 1: The Rudiments of VATs Peak)
- VAT characteristic: broad-based tax on all commodity sales; registered businesses credit input VAT against output VAT; excess credits refunded.
- Zero-rating: VAT levied at a rate of zero; no tax due on output, but input VAT credit remains and becomes a refund.
- Exemption: no tax due on output and no credit for input VAT—VAT “sticks” on business purchases.
- Destination principle (international norm): commodities taxed where consumed; implemented by zero-rating exports and charging VAT on imports; exporters due refunds but this is WTO-consistent and not an export subsidy.
- Invoice-credit VAT: registered traders charge tax on sales and issue invoices enabling buyers to claim credits/refunds; most national VATs use invoice-credit form. Alternative: subtraction method (Japan) and addition method at lower government levels (example: Michigan until 2008).

### Types of risks, frauds, and channels of vulnerability
- Zero-rating of exports creates refund flows that can be exploited; carousel fraud epitomizes this vulnerability.
- Fraud and evasion problems are not limited to EU or high-income countries; informality and corruption in developing countries may amplify problems.
- VAT-specific vulnerabilities and cross-border trade liberalization increased opportunities for organized fraud.

### Enforcement, evasion, and the rationale for VAT use
- The theoretical case for a general commodity tax is limited; practical justification rests on administrative practicality and enforceability.
- VAT can provide distinct enforcement information (e.g., trader turnover) that complements income tax administration and can reduce overall fiscal exposure to evasion.
- Spreading enforcement risk across multiple taxes may improve welfare relative to reliance on a single tax (cited formal results).
- VAT often favored over a single-stage Retail Sales Tax (RST) on enforcement grounds; a perfectly functioning VAT and a perfectly functioning RST at the same rate would collect the same revenue and have the same incidence (implementation differences remain relevant).

### Implications for policy and administration (policy-relevant points from text)
- Enforcement must be central to the assessment of indirect taxes and design choices: VAT’s revenue advantages are contingent on effective enforcement.
- Coordination between VAT and income tax enforcement can yield mutual benefits through shared information (e.g., turnover data).
- The destination principle and zero-rating of exports, while standard and WTO-consistent, require robust controls to limit refund-related fraud (carousel fraud).
- Countries considering VAT adoption (for example, the United States) should weigh these enforcement risks and administrative complementarities rather than assuming VAT substitutability for income tax.

*Source: 1. HMRC’s “Top Down” Estimate of the United Kingdom VAT Gap, Tax Years 2000–01 to 2004–05*

### Box 2. Equivalence of VAT and RST—When They Both Function Perfectly

### Box 2. Equivalence of VAT and RST—When They Both Function Perfectly

### Simplified numerical example of equivalence
- Production chain: one intermediate goods producer sells all its $10m output to a single producer of final consumption goods, which in turn sells all its $15m output direct to the public.
- VAT rate: 20 percent.
- Total revenues under VAT: $3m, equal to revenues from a 20 percent RST applying only to final sales.
- Timing difference: some VAT revenue is collected at an earlier stage, providing a potential cash flow gain for the government.

- Table of amounts (as presented):
  - Value of sales to final consumers: Intermediate Goods Producer 0; Final Goods Producer $15m
  - Value of sales of intermediate goods: Intermediate Goods Producer $10m; Final Goods Producer 0
  - Value of purchased inputs: Intermediate Goods Producer 0; Final Goods Producer $10m
  - Output VAT on sales: Intermediate Goods Producer $2m; Final Goods Producer $3m
  - Input VAT credit: Intermediate Goods Producer 0; Final Goods Producer $2m
  - Net VAT due: Intermediate Goods Producer $2m; Final Goods Producer $1m
  - RST on retail sales: Intermediate Goods Producer 0; Final Goods Producer $3m

### Key conceptual distinctions between VAT and RST
- Administrative population:
  - Under VAT: number of firms to be controlled may be greater if all business types are included, but may be lower because many small firms are typically excluded.
  - Under RST: typically applies to retailers only.
- Revenue protection:
  - VAT levies tax at each stage of production, protecting revenue even if the final seller is not taxed (tax lost only on value added at final stage if prior stages were properly taxed).
  - RST levied only at final sale means if the final seller is not taxed, all revenue is lost.
- Timing/cash-flow:
  - VAT collects some revenue earlier in the production chain, potentially improving government cash flow.
- "Self-enforcing" claim:
  - Some claim VAT is self-enforcing because traders have incentive to ensure suppliers paid VAT to claim credits.
  - Counterpoints:
    - Businesses have no incentive, unless legally required, to ensure suppliers actually paid tax—only to obtain acceptable invoices.
    - VAT is somewhat self-correcting: if a supply to a registered trader escapes VAT, missing VAT will be recovered at the next stage because there will be no credit to offset liability.
    - The notion that VAT is fully self-enforcing is described as “illusory.”

### Typology of frauds and evasion (overview)
- Frauds that can arise under both VAT and RST:
  - Under-reported sales:
    - Traders may falsify records or make sales "off the books"; issuing or not issuing invoices affects detectability; sales to final consumers/exempt businesses give no incentive to issue invoice.
  - Failure to register:
    - Small firms below or near compulsory registration threshold may not register; "ghosts" unknown to authorities can evade VAT and income taxes.
  - Misclassification of commodities:
    - Shifting sales into lower-taxed categories when multiple rates or exemptions exist.
  - Omission of self-deliveries:
    - Producer consumption by owners/employees may not be declared; more relevant in economies with significant agriculture.
  - Tax collected but not remitted:
    - False accounting, engineered bankruptcy, or "missing trader" frauds where businesses charge VAT and disappear.
  - Imported goods not brought into tax:
    - If imports are not taxed at the border, they can be resold untaxed; most VATs tax imports immediately, reducing this risk, though acquisition fraud arises under some deferred payment systems.

- Frauds distinct to the invoice-credit VAT:
  - False claims for credit or refund:
    - Forged invoices for non-existent or exaggerated purchases; example: 44 percent of VAT fraud found in a Netherlands investigation took this form.
    - Export zero-rating creates incentive for fraudulent export claims ("diversion fraud" or fictitious exports) and challenges administrations balancing prompt refunds and revenue protection.
  - Credit claimed for VAT on purchases that are not creditable:
    - Misallocation of inputs between taxed and exempt outputs; private consumption misrepresented as business inputs.
  - Bogus traders ("invoice mills"):
    - Entities set up solely to generate invoices enabling VAT recovery, exploiting impracticality of cross-checking every invoice.

### Quantitative significance and determinants of abuse
- Importance of assessing not just number of evasion possibilities but:
  - Number of taxpayers able to exploit them.
  - Risks of detection and enforcement.
  - Specific design features of the tax system.

### Implications for VAT design (key design aspects)
- Rate differentiation:
  - Multiple rates increase scope for misclassification fraud and can create refund entitlements that enable abuse.
  - Reduced rates are distributionally elegant but broaden refund problems beyond exports.
  - Newer VATs commonly have a single non-zero rate; EU VATs show considerable rate differentiation.
- Level of VAT rates:
  - Higher VAT rates make some frauds more attractive and encourage informality by allowing untaxed operators to undercut formal firms while still covering unrecovered input tax.
  - Suggests preference for lower VAT rates than might otherwise be set.
- Exemptions:
  - Exemption can avoid refund needs and address technical difficulties (e.g., financial intermediation), but introduces production inefficiency and allocation problems for input VAT.
- Registration thresholds:
  - Higher thresholds sharply reduce number of firms the administration must handle.
  - Examples of thresholds:
    - United Kingdom around UKL 61,000 (about $115,000)
    - Lebanon around $100,000
    - Singapore $500,000
  - Revenue lost by high thresholds may be small relative to administrative and compliance cost savings because tax base is concentrated in largest companies.
  - Firms not registered still face a non-zero effective tax rate because they cannot reclaim VAT on inputs.
  - Thresholds can distort competition between firms above and below the threshold.

*Box 2. Equivalence of VAT and RST—When They Both Function Perfectly (wp0731).*

### Chapter 7.

### Chapter 7

### VAT design features and anti-evasion measures
- Simplified and lump-sum schemes for small traders can reduce revenue loss from nonregistered firms by taxing smaller firms on gross turnover, reducing evasion opportunities and competitive distortions.
- Timing of payments and refunds affects fraud incentives:
  - Rapid refunds relative to collections increase scope for frauds involving false refund claims by firms that disappear, because authorities have less time to detect fraud and firms may be net tax creditors for a period.
  - A trade-off exists: prompt refunds can create vulnerabilities (example: difficulties in the United Kingdom may partly reflect strong commitment to prompt refunds), whereas in many developing countries refunds are extremely difficult to obtain and may be subject to bribes.
- General point: the structural characteristics of the VAT—argued to make it less exposed to evasion than the RST—combined with design choices (registration thresholds, simplified schemes, timing of refunds) have allowed many European countries to levy high VAT rates with reasonable success, though recent EU concerns have reduced complacency.

### International aspects of VAT fraud — carousel / MTIC fraud
- Core vulnerability: zero-rating of exports breaks the VAT chain at the interface of domestic and foreign tax administrations, creating fraud opportunities.
- Carousel fraud (a special case of “missing trader intra-community fraud” (MTIC)) exploits export zero-rating and the EU “deferred payment” mechanism for VAT on imports (imports are accounted for on the next periodic return rather than at the border).
- Simple illustrative numeric example:
  - Company A (France) exports a good to Company B (UK) at a VAT-free unit price of €100 (export zero-rated).
  - Applicable VAT rate in the United Kingdom assumed to be 15 percent.
  - Under deferred payment, Company B accounts for VAT in its periodic return and sells to Company C at €115, with €15 shown as VAT. The €15 invoice entitles C to a €15 credit.
  - Company B disappears without remitting the €15 to revenue authorities.
  - Goods move through buffer companies to Company D, which exports the good and claims a VAT refund that includes the €15 not paid by B; refund paid to D equals €15 in the simple no-markup case.
  - In a pure carousel, goods return to France and the cycle repeats.
- Generic features of carousel fraud:
  - It is effectively a “double-dip” fraud:
    - Acquisition fraud: importer B keeps the VAT (€15 in example), gaining competitive advantage.
    - Export refund: exporter D reclaims a refund (another €15 in example) that includes VAT not remitted by B.
  - From outside, it may be hard to identify which traders are complicit; buffer firms may be innocent.
  - The missing-trader importer must be VAT-registered because EU zero-rating of exports to another member state requires production of a VAT registration number.
  - Fraudsters can obscure operations via complex buffer chains, country routings, and price manipulations (e.g., price drops at import stage).

### Extent of VAT noncompliance and fraud — evidence and UK estimates
- General observation: there is little hard publicly available evidence on the extent of noncompliance and fraud under the VAT; headline figures (e.g., “10 percent of net VAT receipts” losses in some EU states) often have unclear bases.
- United Kingdom: HMRC top-down “VAT gap” methodology:
  - Compares actual VAT receipts with a “theoretical total VAT liability” (VTTL) estimated from national accounts data on household spending broken down by VAT rates and adjusted for exemptions, small-firm effective rates, timing lags, and legitimate input-VAT recovery by certain suppliers.
  - Key adjustments:
    - Deduct sales by firms genuinely below registration threshold (effective VAT ~3–6 percent depending on sector).
    - Adjust for effective rates on explicitly exempt supplies (financial, health, education, clubs).
    - Timing adjustment for average lag of approximately one quarter between transaction and VAT receipt.
    - Adjust for legitimate recovery by suppliers to government departments and broadcasters.
- HMRC top-down results (Tax years 2000–01 to 2004–05):
  - 2000–01: Net VTTL £68.5 bn; Net VAT receipts £58.5 bn; Revenue shortfall £10.0 bn; Tax gap 14.6 percent of net VTTL
  - 2001–02: Net VTTL £72.4 bn; Net VAT receipts £61.0 bn; Revenue shortfall £11.3 bn; Tax gap 15.7 percent of net VTTL
  - 2002–03: Net VTTL £76.5 bn; Net VAT receipts £63.6 bn; Revenue shortfall £12.8 bn; Tax gap 16.8 percent of net VTTL
  - 2003–04: Net VTTL £79.9 bn; Net VAT receipts £69.1 bn; Revenue shortfall £10.8 bn; Tax gap 13.5 percent of net VTTL
  - 2004–05: Net VTTL £84.0 bn; Net VAT receipts £72.7 bn; Revenue shortfall £11.3 bn; Tax gap 13.5 percent of net VTTL
  - HMRC reports that in the two most recent years the tax gap was some 13.5 percent of the VTTL, an annual revenue loss of approximately £11 billion.
  - HMRC views the series as more reliable for changes in evasion than for absolute levels.
- HMRC bottom-up estimates for tax year 2001–02 (reported as ranges; VTTL assumed to be £70 bn for percentage calculations):
  - Missing trader (MTIC) fraud: Estimated Revenue Loss £1.77–2.75 bn; 2.5–3.9 percent of full-compliance VAT revenues
  - “Artificial” tax avoidance: Estimated Revenue Loss £2.5–3.0 bn; 3.6–4.3 percent
  - Nonregistration for VAT: Estimated Revenue Loss £0.4–0.5 bn; 0.6–0.7 percent
  - General noncompliance by VAT-registered firms: Estimated Revenue Loss £2.5–4.0 bn; 3.6–5.7 percent
  - Total bottom-up estimate: £7.17–10.25 bn; 10.2–14.6 percent of VTTL
  - Comparison: the upper end of the bottom-up range is broadly consistent with the 2001–02 top-down estimate of £11.3 billion (15.7 percent of VTTL).
- MTIC trend indications and trade-statistics adjustments:
  - More recent HM Revenue and Customs estimates for MTIC fraud (2000–01 to 2004–05) suggest revenue loss from such fraud fell to some £1.12–£1.9 billion in 2004–05, equivalent to a VAT “gap” from this source of 1.3–2.3 percent.
  - Office of National Statistics adjustments to published trade data indicate sharp growth in fraudulent trade: £2.7 billion in 2004, £11 billion in 2005, and £6.5 billion in the first quarter of 2006 alone (Bank of England, 2006, p 23). If the latter figure were to be maintained through the year, it would imply fraudulent exports of £26 billion, and, applying the U.K. standard VAT rate of [text truncated in source].

*Italic: Source: _wp0731 - Chapter 7.*

### 17.5 percent, associated revenue losses of some £4.5 billion, about 5 percent of VTTL—

### _wp0731 - 17.5 percent, associated revenue losses of some £4.5 billion, about 5 percent of VTTL—

### Context and comparison with HMRC
- The 17.5 percent figure, associated revenue losses of some £4.5 billion, about 5 percent of VTTL— is about twice the upper bound of HMRC’s estimate of the revenue lost through missing trader fraud in 2004–05.

### Estimates from Gebauer and Parsche (2003)
- Using a “top-down” approach broadly similar to that described above, Gebauer and Parsche (2003) estimate VAT evasion rates for 10 EU countries.
- Table 3 reports the evasion rates for each of the 10, averaged over the three years for which estimates have in each case been made.

### VAT Gap (Evasion) estimates — three-year averages (from Gebauer and Parsche (2003), Table 1)
- Netherlands: 2.4 (1994–96)
- Great Britain: 3.8 (1991–93)
- Denmark: 4.2 (1994–96)
- Germany: 4.8 (1994–96)
- France: 8.8 (1991–93)
- Portugal: 14.2 (1994–96)
- Belgium: 19.3 (1994–96)
- Greece: 20.2 (1994–96)
- Spain: 22.6 (1994–96)
- Italy: 34.5 (1991–93)

### Cross-country differences and interpretation
- There are substantial cross-country differences in estimated VAT evasion rates.
- The Netherlands, Great Britain, Denmark and Germany have average evasion rates of under 5 percent.
- Evasion rates exceed 15 percent in Belgium, Greece, Spain and Italy.
- In Italy, the estimated evasion rate implies that for every billion Lire collected in VAT, a further half-billion Lire in tax was evaded; this is broadly consistent with Pedone’s (1981) earlier estimate that 40 percent of potential VAT revenue in Italy was lost through evasion.

### Temporal developments and country cases
- Across the three years for which the study reports estimates, the VAT gap was fairly stable in most countries.
- The VAT gap was found to have increased sharply in both Germany and the United Kingdom over the periods analyzed.
- In Germany, the VAT evasion rate rose from 1.6 percent to 7.5 percent over the three years 1994–96.
- Figures for Germany for later years reported by Gebauer and Parsche (2003, Table 2), based on data that are not wholly comparable with the earlier period, suggest:
  - The growth in VAT evasion slowed in the late 1990s.
  - The VAT gap then rose sharply to 9.5 percent in 2001—broadly consistent with the later estimate for 2003 cited above.
  - More recently (relative to the report), the same methodology suggests a fall in VAT evasion in Germany in 2005, in sharp contrast with experience in the United Kingdom.

*Source: Calculated from data in Gebauer and Parsche (2003), Table 1.*

### 0.4 percent in 1991, rising to 4.4 percent in 1992 and 6.5 percent in 1993. These figures are

### _wp0731 - 0.4 percent in 1991, rising to 4.4 percent in 1992 and 6.5 percent in 1993. These figures are

### VAT gap estimates and measurement
- Reported estimates for a UK series: 0.4 percent in 1991, rising to 4.4 percent in 1992 and 6.5 percent in 1993.
- These figures are much lower than the official United Kingdom estimates for these three years, which are roughly three times higher on average across the three years (and more than 20 times higher for 1991).
- Differences likely reflect different judgements about adjustments moving from macroeconomic data on sales to the theoretical full-compliance level of VAT revenues.
- Caution: estimating the VAT gap—“like other attempts to measure economic activity deliberately concealed by the perpetrators”—is described as “inevitably an imprecise art.”
- Refunds are commonly very sizable:
  - For a sample of EU countries, refunds average “a little under 30 percent of gross VAT collections.”
  - Around 50 percent in Canada and Sweden (reflecting extensive zero-rating).

### Econometric analyses of determinants of VAT compliance
- Data limitations: no researcher has assembled more than a small cross-section of observations of VAT compliance.
- Agha and Haughton (1996) — 17 OECD members, 1987:
  - Sample average VAT rate: 15.8 percent.
  - A 1 percentage point increase in the VAT rate would reduce the compliance rate by 2.7 percentage points.
  - Number of VAT rates: each additional rate reduces compliance by, on average, 7 percentage points.
  - Compliance increases with the length of time the VAT has been in operation.
  - Compliance increases as country population is smaller.
  - VAT base as proportion of GDP, severity of penalties for late payment, and proportion of population registered to pay VAT had no significant impact.
  - Small sample size and potential heterogeneity bias imply conclusions require “great caution.”
- Brondolo and Silvani (1993) — 20 diverse countries: find little evidence of significant design effects on consumption.
- C-efficiency approach (Ebrill and others, 2001; Aizenman and Jinjirak, 2005):
  - C-efficiency = (VAT revenue / aggregate consumption) / standard rate of VAT; equals unity under uniform single rate VAT, perfectly enforced.
  - Advantage: relatively easily measured, permits larger datasets.
  - Disadvantage: C-efficiency conflates compliance and VAT rate-structure effects (ratio of average VAT rate to standard rate).
  - Findings such as negative impact of standard rate and range of rates are “broadly consistent with, but do not prove,” practitioner presumptions.
  - Both sets of authors find C-efficiency falls with the share of agriculture in GDP; interpretation ambiguous (low compliance in hard-to-tax sector vs. low VAT rates/exemptions on agricultural products).
  - Suggestive positive impact of openness (collection of tax on imports can be key), particularly for lower-income countries.
- VAT productivity analyses (VAT revenue / (standard rate × GDP)) also conflate compliance and induced consumption effects; used to suggest revenue-maximizing rate:
  - Matthews and Lloyd-Williams (2000) and Matthews (2003) suggest a revenue-maximizing rate for EU countries of around 18–20 percent.

### Comparison with other taxes
- Retail sales tax (RST) evidence sparse; example Washington state:
  - Sales tax gap about 1.3 percent (Washington state).
  - Evasion of the use tax on out-of-state purchases around 28 percent (Washington state).
  - Folk wisdom: RST becomes unworkable at rates of more than 10–12 percent.
- Individual income tax:
  - United States tax gap estimated at 13.7 percent (Slemrod, 2006).
  - Corresponding figure for the United Kingdom likely somewhat lower (less self-employment income, greater use of withholding).
  - Noncompliance in the United Kingdom may now be greater under the VAT than under the personal income tax, but “not of a completely different order of magnitude.”
- Transfer and benefit overpayments:
  - Earned Income Tax Credit (US returns filed in 2000): overpayments about 27–32 percent of total paid (Internal Revenue Service, 2002).
  - United Kingdom Working Families Tax Credit excess payments reported around 10 percent of total (reported by BBC, July 11, 2006).
- Comparative magnitudes highlighted:
  - Some careful UK VAT gap estimates: around 13.5 percent or, in a bad year, nearly 17 percent.
  - US personal income tax gap: 13.7 percent (US) — UK personal income tax likely somewhat less than 14 percent.

### Enforcement strategies and operational challenges
- Core elements of VAT administration: identification/registration, collection and processing, audit, enforcement—shared with other self-assessed taxes.
- Distinctive VAT issues:
  - Central role of the VAT invoice in establishing tax due and credit available.
  - Taxpayer liabilities can be negative (refunds), amplified by zero-rating of exports and domestic zero-rating.
  - Refunds create revenue risks: too lax invites fraud; too strict turns VAT into a tax on production/exports.
- Specific operational points:
  - Structural need for refunds depends on VAT design and economy structure; higher with higher exports-to-GDP ratio.
  - Examples of administrative measures:
    - Tighter registration checks (on-site visits, background checks), requiring guarantees in dubious cases.
    - Joint and several liability rules to hold traders responsible for fraud elsewhere in the chain.
    - Better and quicker information exchange between national tax authorities (e.g., VIES in EU), though current lags limit ex ante prevention.
- Administrative proposals to counter carousel and export-zero-rating fraud:
  - Reverse charging (place VAT liability on the buyer rather than the seller):
    - UK adopted reverse charging for mobile phones, computer chips, and other goods vulnerable to carousel fraud.
    - Austria and Germany proposed reverse charging for all B2B transactions above thresholds: €5,000 for goods, €10,000 for services.
    - Risks: may increase refund claims, displace fraud to other items, in the limit convert VAT into an RST and risk noncollection if final seller fails to remit.
  - Reverse withholding (buyer remits VAT on purchases; seller remains liable but receives credit for withheld amount):
    - Widespread in Latin America and Africa; not common in Europe.
    - Protects revenue more firmly than reverse charging if withholding at full rate, but may increase refund needs and administrative complexity.
  - VAT accounts (distinct bank account to which traders transfer VAT charged):
    - Proposed by Sinn, Gebauer, and Parsche (2004); implemented in Bulgaria.
    - Allows authorities to check claimed refunds against actual payments into account.
    - Disadvantages: additional compliance costs, interest foregone, moves VAT from accrual to cash basis; Bulgaria reportedly removing the system.
  - Compulsory use of a third party to guarantee VAT payments (“D-VAT” per Ainsworth (2006)):
    - Passes risk to guarantor; guarantor will require compensation.
  - P-VAT (Poddar and Hutton, 2001): goods not allowed to clear customs until authorities have confirmation or guarantee that import VAT has been paid:
    - Addresses export-zero-rating fraud but reintroduces customs restrictions—counter to EU single market objectives.
- More radical structural proposals to eliminate export zero-rating (fix the VAT chain):
  - Exporter-rating (European Commission initial proposal):
    - Intra-Union exports bear VAT at rate of exporting country; importer given full credit; revenue transfers from exporting to importing country to replicate zero-rating allocation.
    - Initial proposal: transaction-based “clearing house”; alternative: allocate revenues by aggregate consumption.
    - Weakness: poor incentives for importers to verify credits; exporting country bears fraud cost; creates bureaucracy and political resistance.
    - Transactions clearing house has been used between Israel and West Bank Gaza with apparent success, but context differs from EU.
  - CVAT (Varsano, 1999; McLure, 2000):
    - Exports formally zero-rated in exporting country, then immediately subjected to a special ‘compensating’ VAT fully creditable in importing country.
    - Net revenue of compensating tax in principle zero (ignoring exemptions and final consumer sales).
    - Drawback: exports continue to be treated differently from domestic sales, complicating a unified single market.
  - VIVAT (Keen and Smith, 1996, 2000):
    - Charge a single common rate on all B2B sales (domestic or across borders); final sales rates remain national.
    - Traders treat sales to registered customers uniformly across borders.
    - Criticisms: requires taxpayers to know whether customer is registered (already needed for intra-Union zero-rating), revenue allocation issues for net exporters and net importers may necessitate clearing.
  - All radical schemes address export-zero rating more robustly than administrative measures but raise sensitive issues of tax sovereignty (who sets rates, who administers).
- Administrative solutions all have weaknesses: can create new fraud opportunities or increase compliance costs.

### Policy implications and recommendations (implicit in analysis)
- Design VAT with current best practice to limit vulnerability:
  - Prefer single rate, reasonably high threshold, limited exemptions.
- For countries with lower exports-to-GDP ratio, structural refund need is smaller:
  - Example: United States exports-to-GDP 7 percent compared to United Kingdom 17 percent (2005).
- If decentralizing VAT design (e.g., state-level components), confront inter-state trade fraud issues up front and consider structural solutions (e.g., CVAT, VIVAT) or strong administrative safeguards.
- Consider targeted administrative measures where appropriate (reverse charging for vulnerable goods/sectors; tighter registration; information exchange; “gold card” refund assurances), recognizing trade-offs (compliance costs, potential displacement of fraud).
- Deep structural fixes (ending export zero-rating through CVAT, VIVAT, or exporter-rating) are conceptually well-known and more robust but politically and administratively demanding.

### Conclusions — lessons for the United States
- VAT is susceptible to evasion and fraud, including sophisticated carousel schemes; these attract headlines but are not unique in tax systems.
- In revenue terms a fraudulent VAT refund is economically equivalent to under-declared income tax: $1 lost is $1 lost.
- Some UK VAT gap estimates: around 13.5 percent or, in a bad year, nearly 17 percent; comparable to US personal income tax gap (13.7 percent).
- A federal VAT in the United States, designed with best practice and appropriate administrative framework, should not be more vulnerable to noncompliance than the United Kingdom’s:
  - Lower exports-to-GDP ratio (7 percent vs. 17 percent, 2005) implies lower structural need for refunds.
  - Avoiding extensive domestic zero-rating reduces risk.
  - A federal VAT avoids EU-like inter-member state border-control problems provided fiscal controls on trade with the rest of the world are maintained.
- Deep solution to carousel fraud: fix the VAT chain by ending export zero-rating (CVAT, VIVAT, exporter-rating); politically difficult in large multi-jurisdiction settings but conceptually straightforward.
- Overall judgement: VAT fraud is serious and organizationally sophisticated, but many VAT compliance aspects work well; with sufficient will the EU difficulties can be controlled, and the United States could largely avoid them with considered design and administration.

*Source: Excerpt from IMF working paper _wp0731 (PDF chapter/section).*

### References

### _wp0731 - References

### Academic and research references
- Agha, Ali, and Jonathan Haughton, 1996, “Designing VAT Systems: Some Efficiency Considerations,” The Review of Economics and Statistics 78, No. 2, pp. 303–08.
- Ainsworth, Richard T., 2006, “Carousel Fraud in the EU: A Digital VAT Solution,” Tax Notes International, pp. 443–48.
- Aizenman, Joshua, and Yothin Jinjirak, 2005, “The Collection Efficiency of the VAT: Theory and International Evidence,” NBER Working Paper No. 11539 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Bird, Richard M., 1993, “Review of ‘Principles and Practice of Value Added Taxation: Lessons for Developing Countries,’” Canadian Tax Journal, 41 No. 6, pp. 1222–25.
- Bird, Richard M., Jack M. Mintz, and Thomas A. Wilson, “Coordinating Federal and Provincial Sales Taxes: Lessons from the Canadian Experience,” National Tax Journal, forthcoming.
- Boadway, Robin, Maurice Marchand, and Pierre Pestieau, 1994, “Towards a Theory of the Direct-Indirect Tax Mix,” Journal of Public Economics 55, pp. 71–88.
- Boadway, Robin, and Pierre Pestieau, 2003, “Indirect Taxation and Redistribution: The Scope of the Atkinson-Stiglitz Theorem,” In Economics for An Imperfect World: Essays in Honor of Joseph E. Stiglitz, ed. by Richard Arnott, Bruce Greenwald, Ravi Kanbur and Barry Nalebuff (Cambridge, Massachusetts: MIT Press) pp. 387–403.
- Brondolo, John, and Carlos Silvani, 1993, “An Analysis of VAT Compliance,” mimeo (Washington: International Monetary Fund).
- Browning, Martin, and Costas Meghir, 1991, “The Effects of Male and Female Labor Supply on Commodity Demands,” Econometrica 59, pp. 925–951.
- Cnossen, Sijbren, 1990, “Taxing Value Added: The OECD Experience,” International VAT Monitor 5 (May), pp. 2–16.
- Commission of the European Communities, 2004, Report from the Commission to the Council and the European Parliament on the Use of Administrative Cooperation Arrangements in the Fight Against VAT Fraud, 260 final. COM
- Dharmpala, Dhammika, and Joel Slemrod, 2006, “Optimal Tax Remittance by Heterogeneous Firms,” mimeo (Ann Arbor, Michigan: University of Michigan).
- Ebrill, Liam, Michael Keen, Jean-Paul Bodin, and Victoria Summers, 2001, The Modern VAT (Washington: International Monetary Fund).
- Fedeli, Silvia, and Francesco Forte, 1999, “Joint Income Tax and VAT-Chain Evasion,” European Journal of Political Economy 15, pp. 391–415.
- Fox, William, and Matthew N. Murray, 2004, “Sales Taxation in a Global Economy,” In Taxing the Hard-to-Tax, ed. by James Alm, Jorge Martinez-Vasquez, and Sally Wallace (Amsterdam: Elsevier), pp. 221–44.
- Harrison, Graham, and Russell Krelove, 2005, “VAT Refunds: A Review of Country Experience,” IMF Working Paper 05/218 (Washington: International Monetary Fund).
- Hemming, Richard and John Kay, 1981, “The United Kingdom,” In The Value Added Tax: Lessons from Europe, ed. by H. J. Aaron (Washington: Brookings Institution).
- Internal Revenue Service, 2002, “Compliance Estimates for Earned Income Tax Credit Claimed on 1999 Returns” (Washington: Internal Revenue Service).
- International Tax Dialogue, 2004, “The Value Added Tax: Experiences and Issues,” available at www.itdweb.org
- Kay, John, 1989, “The Economic Functions of the Tax System,” In The Economic Borders of the State, ed. by Dieter Helm (Oxford: Oxford University Press), pp. 218–236.
- Keen, Michael, 2001, “States’ Rights and the Value Added Tax: How a VIVAT Would Work in the U.S.” Proceedings of the National Tax Association, pp. 195–200.
- Keen, Michael, 2006, “VAT, Tariffs and Withholding: Tax Design and the Informal Sector,” mimeo (Washington: International Monetary Fund).
- Keen, Michael and Ben Lockwood, 2006a, “The Value Added Tax: Its Causes and Consequences,” mimeo (London: University of Warwick).
- Keen, Michael and Ben Lockwood, 2006b, “Is the VAT a Money Machine?” mimeo (London: University of Warwick).
- Keen, Michael, and Jack Mintz, 2004, “The Optimal Threshold for a Value-Added Tax,” Journal of Public Economics 88, pp. 559–76.
- Keen, Michael, and Stephen Smith, 1996, “The Future of Value-Added Tax in the European Union,” Economic Policy 23, pp. 373–411 and 419–20.
- Keen, Michael, and Stephen Smith, 2000, “Viva VIVAT!,” International Tax and Public Finance 7, pp. 741–51.
- Lee, Catherine, Mark Pearson, and Stephen Smith, 1988, Fiscal Harmonisation: An Analysis of the European Commission’s Recommendations, Report Series No. 28 (London: Institute for Fiscal Studies).
- Matthews, Kent, 2003, “VAT Evasion and VAT Avoidance: Is There an European Laffer Curve for VAT?” International Review of Applied Economics 17, No. 1, pp. 105–114.
- Matthews, Kent, and Jean Lloyd-Williams, 2000, “Have VAT Rates Reached Their Limit? An Empirical Note,” Applied Economics Letters 7, pp. 111–115.
- McLure, Charles E. Jr., 2000, “Implementing Sub-National Value Added Taxes on Internal Trade: The Compensating VAT (CVAT),” International Tax and Public Finance 7 pp. 723–40.
- Organisation for Economic Co-operation and Development, 2001, Taxation and Electronic Commerce (Paris: Organisation for Economic Co-operation and Development).
- Pedone, A., 1981, “Italy,” In The Value Added Tax: Lessons from Europe, ed. by Henry J. Aaron (Washington: The Brookings Institution).
- Poddar, Satya, and Eric Hutton, 2001, “Zero-Rating of Inter-State Sales Under a Sub-National VAT: A New Approach,” mimeo (Toronto: Ernst and Young).
- Ruffles, David, Geoff Tily, David Caplan, and Sandra Tudor, 2003, “VAT Missing Trader Intracommunity Fraud; The Effect on Balance of Payments Statistics and U.K. National Accounts,” Economic Trends No. 597, pp. 58–70.
- Sinn, Hans-Werner, Andrea Gebauer, and Rüdiger Parsche, 2004, “The Ifo Institute’s Model for Reducing VAT Fraud: Payment First, Refund Later,” CESifo Forum 2, pp. 30–4.
- Slemrod, Joel, 2006, “Cheating Ourselves: The Economics of Tax Evasion,” Journal of Economic Perspectives, forthcoming.
- Varsano, Ricardo, 2000, “Sub-National Taxation and Treatment of Interstate Trade in Brazil: Problems and a Proposed Solution,” In Decentralization and Accountability of the Public Sector, ed. by Shahid Javed Burki, Guillermo Perry, and Others, Proceedings of the Annual Bank Conference on Development in Latin America and the Caribbean, (Washington: The World Bank) pp. 339–55.
- Zee, Howell, 2005, “Simple Analytics of Setting the Optimal VAT Threshold,” De Economist, 153, pp. 461–71.
- Zee, Howell, 2006, “VAT Treatment of Financial Services: A Primer on Conceptual Issues and Country Practices,” INTERTAX, 34, pp. 458–74.

### Official publications and reports
- Bank of England, Inflation Report (August, 2006) online at http://www.bankofengland.co.uk/publications/inflationreport/ir06aug.pdf
- European Commission, Report from the Commission to the Council and the European Parliament on the Use of Administrative Cooperation Arrangements in the Fight Against VAT Fraud. COM (2004) 260 final.
- U.K., Government. HM Customs and Excise. Measuring Indirect Tax Losses (November, 2002) online at http://www.hm-treasury.gov.uk/media/389/E5/admeas02-297kb.pdf
- U.K., Government. HM Customs and Excise. Measuring and Tackling Indirect Tax Losses. An update on the Government's Strategic Approach (December, 2003) online at http://customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_PROD_011582
- U.K., Government. HM Revenue and Customs. Measuring Indirect Tax Losses—2005 (December, 2005) online at http://www.hmrc.gov.uk/pbr2005/mitl2005.pdf
- U.K., Government. National Audit Office. HM Customs and Excise. Tackling VAT Fraud. Report by the Comptroller and Auditor General, HC 357 Session 2003-2004 (3 March, 2004).

*Source: _wp0731 - References*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp0731.pdf_