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:
- You will be subject to detailed audit and investigation.
- 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.
- You will be denied of the input tax on your
purported purchases under the Knowledge Principle.
- 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.
- Your
GST registration may be cancelled by IRAS.
- 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.
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 | |
|---|
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)".