© 2016 David Morrow

Telecoms & MTICMissing Trader VAT Fraud

© 2016 David Morrow

MTIC will bite you

The risk is real – even if the photo is fakedhttp://worldnewsdailyreport.com/man-takes-selfie-moments-before-deadly-shark-attack/

© 2016 David Morrow

BackgroundMTIC (Missing Trader Intra-Community) fraud is a serious problem for the EU - recent Europol estimates of €100bn lost annually through VAT fraud

This presentation was created to help raise awareness of MTIC in Telecoms – you need to know it’s out there. It provides a simple introduction to VAT and how it works, describes MTIC risks and links to a free guide which provides a structured approach to recognising and responding to those risks

© 2016 David Morrow

How does VAT work?Businesses charge VAT on their goods or services and can reclaim any VAT they’ve paid on business-related goods or servicesIn this simple example, the business purchases parts in order to manufacture and sell a laptop; the tax on purchases is known as input tax and the tax on sales is known as output tax.VAT traders must report the VAT they’ve charged by sending a VAT Return to their tax authority; this is usually due every month or 3 months.

© 2016 David Morrow

How does MTIC work?• VAT repayment fraud, involves a registered VAT trader making a

fraudulent reclaim of VAT and disappearing with the money• MTIC relies on cross-border supplies between EU members being

zero-rated for VAT purposes so a trader effectively receives those goods or services VAT free• The fraudsters establish a fraudulent trading chain and one of the

companies in the chain goes missing with the VAT• If the goods re-enter the system it’s known as a carousel fraud

© 2016 David Morrow

MTIC carousel

-£220,000

UK trader A goes missing with£220,000 VAT

UK trader A sells to UK trader B£1.1m + £220,000 VATReclaims zero VATOutput tax £220,000NET Payment due £220,000

UK trader A €1m purchase from EU SupplierVAT zero rated

UK Trader B sells to UK trader C for £1.2mReclaims £220,000 VATOutput tax £240,000 VATNET Payment due £20,000

UK trader C exports to EU trader£1.3m + zero VATReclaims £240,000 VATOutput tax zeroNET Reclaim due £240,000

Goods re-enter cycle

© 2016 David Morrow

MTIC evolution• As the tax authorities clamped down on high risk goods the

fraudsters had to evolve new models and moved into intangible goods like carbon credits and wholesale telecom services• The tax authorities have tightened up carbon credit trading but the

fraudsters are still active in telecoms – in June 2015, El Pais reported that a fraud at Ono in Spain resulted in the payment of €73.1 million in contributions, fines and other charges

© 2016 David Morrow

Why is MTIC a risk for me?• If you’re involved in a fraudulent supply chain you will be denied

input tax (the VAT on your purchases)• You’ll lose your input tax unless you can show you’ve taken every

reasonable precaution• Costs can be substantial, e.g. professional fees, loss of management

time, potential 100% penalty, plus impact on brand & reputation• Even if the fraudsters are caught, you won’t get your money back• Knowingly participating in a fraud can lead to imprisonment

© 2016 David Morrow

What you need to Do1) Assign accountability for MTIC2) Check relevant legislation, regulation and tax authority guidance3) Conduct a risk assessment4) Train people to recognise MTIC risk and take appropriate actions5) Operate a process to detect and monitor MTIC risks6) Review and document the process

Request your free Telecoms Guide to MTIC here

© 2016 David Morrow

Summary• Its not just VoIP – its any wholesale service• MTIC has made massive profits for organised crime - and they’re

looking for new partners• Conduct a Risk Assessment, implement appropriate controls and

document your actions

prevention will always be cheaper than cure- because there is no cure …