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 deliberately 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
Avoid Being Part of 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 held responsible for GST payable on transactions purportedly made in your business’ name
You will be denied of GST claims for your purported purchases
You will be required to account and pay for GST on goods purportedly exported
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.
Here are some tips on how you can avoid being drawn into a missing trader fraud arrangement:
| Guaranteed profits | • Paid a monthly fee without the need to meet any sales target • Promised a share of the profits from the sales |
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| No commercial and credit risks | • Back-to-back sales arrangement • No requirement to hold inventory • Payment to supplier due only after receiving payment from customer |
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| Minimal effort in running business | • Not required to source for any suppliers or customers • Will be notified when there are potential customers and suppliers • Day-to-day sales and purchase decisions handled by someone else |
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| Do not allow others to use your identity | • Do not allow your name to be used for business registration - be it as a sole-proprietor, partner, or company director • Do not divulge your personal information (i.e. Identification number and SingPass password) to prevent misuse |
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| Know your supplier or customer | • Verify that details provided by supplier/customer is geninue (e.g. website or registered business profile) • Visit the supplier’s/customer’s premises • Ask for trade references |
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| Know the person you are liaising with | • Maintain full name, designation and contact details of the person who contacted you regarding the business transactions • Verify that the person is representing the supplier or customer, and capacity e.g. as employee or agent • Check whether the supplier and customer have the relevant experience in the trade and product/market knowledge |
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| Know the goods you are transacting in | • Know the brand, manufacturer and country of origin of the goods you are transacting in • Assess whether the volume and value of goods transacted is reasonable relative to market demand and price • Verify that the goods exist and are in working condition |
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| Examine payment arrangement | • Assess whether payment terms are in line with commercial practice • Avoid payment arrangements that have higher risks of being linked to money-laundering activities - Cash-only transactions - Payment deposited is immediately transferred out or withdrawn • If payment was made by a third party, find out the relationship of the third party with your customer and reason for the arrangement |
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Disclaimer: The above checks are best practices suggested by IRAS and not meant to be exhaustive. You should be in the best position to determine how to safeguard your business from fraudulent activities. You may also learn more from established players in your industry on what to look out for. This is especially so if you trade in mobile phones, memory cards, off-the-shelf software and electronic components which are more commonly used in missing trader fraud.