Current Area of Focus for Audits

GST is a self-assessed tax. While most taxpayers are generally compliant, IRAS conducts regular audits to encourage voluntary compliance amongst taxpayers and ensure that every taxpayer pays his fair share of taxes.

We identify key areas of compliance risks among taxpayers and adopt a risk-based approach to tailor specific compliance programmes for higher risk industries.

Missing Trader Fraud Arrangements

IRAS is currently focusing its audit and investigation efforts on businesses involved in Missing Trader Fraud arrangements. Such cases are detected using advanced data analytics. Other sources of leads include tip-offs from whistle-blowers.

Businesses should be alert and avoid participating in any arrangement that is organised with the intention to defraud GST.

What is a Missing Trader Fraud?

Under a Missing Trader Fraud arrangement, a group of businesses would form a supply chain and the same goods would be supplied through the chain. To ensure that the final sale of the goods is not subjected to GST, the goods would ultimately be exported to an overseas customer. A seller upstream in the supply chain would charge GST on the sale of goods to businesses downstream and instead of paying the GST over to IRAS, the upstream seller would fail to account in its GST return the GST it has collected. This is termed “missing trader” as the seller disappears with the GST.

To form the fraudulent supply chain, the fraudster would borrow an identity and use it to register a business to facilitate other entities in the chain to claim fictitious GST refunds. Your business could also become a party in the fraudulent supply chain when you accept offers from a fraudster to buy and sell goods in return for a guaranteed profit with no risks.

See illustration and case studies on a missing trader fraud arrangement (878KB,PDF).

Consequence of Being involved in a Missing Trader Fraud

When the arrangement is detected by IRAS, the fraudster who introduced you to the arrangement would leave you to face the authorities on your own as the business is registered in your name and the transactions are carried out by you. 

If you are involved in such an arrangement:

  1. You will be subject to detailed audit and investigation.
  2. You will be notified by the Comptroller that the payment of GST refunds (if any) is withheld if the Comptroller reasonably suspects that the refunds relate to any input tax on any supply made to you which was a part of a Missing Trader Fraud arrangement.
  3. You will be denied of the input tax on your purported purchases under the Knowledge Principle. 
  4. You will have to pay a surcharge of 10% on the amount of input tax claims denied on the grounds that you should have known that your purchases were part of a Missing Trader Fraud arrangement.
  5. Your GST registration may be cancelled by IRAS.
  6. You may be required to comply with any conditions imposed by the Comptroller as may be necessary for the protection of revenue. Failure to comply with these conditions may also result in the cancellation of your GST registration.

    IRAS will also not hesitate to take actions against traders and any intermediaries found to be involved in a GST fraud. Anyone with wilful intent to evade or assist any other person to evade GST faces a penalty of up to three times the amount of tax undercharged and a fine not exceeding $10,000, and/or imprisonment of up to seven years.

    The Knowledge PrincipleNew

    From 1 Jan 2021, you will not be entitled to any input tax on any purchase which you knew or should have known to be a part of a Missing Trader Fraud arrangement. The input tax claim will be denied to you even though you may have satisfied all the conditions for claiming input tax. This is known as the “Knowledge Principle”. 

    Under the Knowledge Principle, you should have known that a supply made to you is a part of a Missing Trader Fraud arrangement if:  

    (a) The circumstances connected with the supply made to you or by you carried a reasonable risk that the supply may be a part of such an arrangement; and

    (b) You did not take reasonable steps to ensure whether the supply was a part of such an arrangement; or

    (c) You took reasonable steps but

         (i) concluded that the supply was not a part of such arrangement and the conclusion is not one that a reasonable person would have made;

         (ii) were unable to conclude that the supply was not a part of such arrangement; or

        (iii) did not make any conclusion as to whether the supply was or was not a part of such arrangement.

    The Knowledge Principle aims to counter such MTF arrangements by ensuring that all businesses across the supply chain take equal responsibility to undertake the necessary precautions, and be accountable for the GST arising from transactions they take part in.

     

    Applying the Knowledge Principle: How You Can Avoid Being Drawn Into a Missing Trader Fraud Arrangement

    IRAS recommends that businesses adopt three broad pillars to aid in the application of the Knowledge Principle. These pillars help you avoid being drawn into a Missing Trader Fraud arrangement: 

    Table caption
    Legitimacy of your immediate customers and suppliers
    • High-value deals offered by a newly established supplier
    • Minimal or no effort required to source for customers and suppliers (pre-arranged deals)
    • Day-to-day sale and purchase decisions handled by someone else (minimal effort to run business)
    • Difficulty in authenticating the identities of persons representing the customers and suppliers, as most instructions are provided either verbally or through instant messaging platforms
    Commercial viability of the business arrangement
    • High volume and value of goods transacted relative to the market demand and price
    • High-value deals offered with no formal contractual agreements

    • Deals with consistent or pre-determined profit margins irrespective of date, quantities or specifications of goods being sold

    • Normal commercial practices not adopted in negotiating prices

    • Very low commercial risks (e.g. no necessity to hold inventory)
    Commercial viability of the payment arrangement

     

    • Very low credit risk (e.g. payment to supplier due only after receiving payment from customer, customer pays in full upfront before goods delivery)

    • Payment arrangements have higher risk of being linked to money-laundering activities (e.g. cash-only transactions)

    • Supplier requiring you to make payments to offshore bank accounts/third parties
    Authenticity of goods/services transacted 
    • Source and authenticity of goods unclear (e.g. brand, manufacturer, country of origin)

    • No assurance on quality, condition and specification of the goods which is backed up by written warranty policies

    • No insurance taken for the goods during shipment

    • No clear indication of the arrangement regarding movement of goods
    Verify legitimacy of immediate parties you transact with    
    • Maintain details of suppliers/customers and verify details against reliable sources
    • Check suppliers’/customers’ relevant experience in the trade and knowledge of the goods/services being bought/sold

    • Ask for trade references and follow-up with them

    • Obtain credit checks from an independent third party

    • Visit the suppliers’/customers’ premises

    • Maintain details (e.g. full name, designation and contact) of any third parties involved in the business arrangement
    Verify commerciality of business arrangement 
    • Understand market demand and price of goods, and whether volume and value transacted at is reasonable and realistic relative to the market demand and price

    • Consider whether it is realistic for a relatively new business to be able to sell the goods at the rates proposed

    • If the transaction involves overseas shipment of goods (import/export), consider whether the arrangement makes economic sense (e.g. whether it is inconsistent with normal geographic trade patterns or whether it is reasonable that the country involved would normally import or export such goods)

    • Understand if there is a reasonable explanation for the low commercial risks involved (e.g. why is there no necessity to keep inventory or source goods from other suppliers)

     Verify commerciality of payment arrangement 
    • Find out if payment terms are in line with commercial practices for the industry

    • Establish if there is any commercial justification for payment arrangements that are out of the norm (e.g. cash-only transactions, payments to offshore accounts)

    • If payment was made by a third party, find out the relationship between the third party and your customer and the reasons for the arrangement 

    • Notice any inconsistencies in the information (e.g. names, companies, addresses, ports of call and destination) contained in the trade documents and financial flows
    Verify authenticity of the goods/services transacted 
    • Know the source of the goods that you are transacting in (e.g. brand, manufacturer and country of origin)

    • Verify that the goods are the same goods as described in the tax invoices and that the goods are in working condition

    • Check on the insurance and warranty arrangements. If these are not available, find out if there is a reasonable explanation

    • Verify that goods are shipped to and received by your customer as described

    • Verify that the customers’ testimonials or reviews are credible and reliable
    Respond appropriately to the identified risks and results of your due diligence checks  
    • Make further enquiries with your customers/ suppliers where necessary

    • Take mitigating steps if the results of your checks are unsatisfactory. This may include not participating in such business opportunities that are deemed to be risky

    Besides these pillars above, always remember to safeguard yourselves as individuals or business owners: 

    • Do not allow others to use your identity for fraudulent purposes;

    • Do not allow your name to be misused for business registration - be it as a sole-proprietor, partner, or company director; and

    • Do not divulge your personal information (i.e. Identification number and Singpass password) to prevent misuse.

    Disclaimer: The above checks are not exhaustive. Depending on the profile of your business and your transactions, you should undertake appropriate due diligence checks in a risk-based and proportionate manner to avoid being involved in a Missing Trader Fraud arrangement.

    For more information, please refer to the e-Tax guide "GST: Guide on Due Diligence Checks to Avoid Being Involved in Missing Trader Fraud (663KB, PDF)".