What is Missing Trader Fraud?
Missing Trader Fraud is a fraudulent scheme targeting the GST system. It typically involves fictitious transactions orchestrated by a network of individuals and businesses designed to illicitly claim GST refunds or avoid tax obligations.
Perpetrators of the Missing Trader Fraud often create chains of sales and purchases transactions involving real or fictitious goods or services. A business upstream in the supply chain typically collects GST from subsequent buyers but vanishes without paying the GST to IRAS. GST-registered buyers downstream in the supply chain then claim from IRAS the GST paid to the upstream suppliers. This results in a loss of government revenue.
To form the fraudulent supply chain, perpetrators may use borrowed identities to register fictitious businesses to enable other entities in the chain to claim fictitious GST refunds from IRAS. Your business could also become a party in the fraudulent supply chain, for example, when you accept offers from perpetrators to buy and sell goods in return for a guaranteed profit with little or no risks.
See Illustration and Case Studies on a Missing Trader Fraud Arrangement (202KB, PDF).
Negative impacts of Missing Trader Fraud
Missing Trader Fraud has significant negative impacts on both businesses and Singapore, including:
Financial implications. The Missing Trader Fraud leads to gaps in the revenue collected by the government, which could have been allocated for public spending that benefits Singapore and Singaporeans. It also leads to financial losses to individuals and businesses found to be implicated in the fraud;
Market distortion. Fraudulent traders undercut legitimate businesses by not paying their fair share of taxes. This distorts fair competition in the market and harms legitimate businesses;
If allowed to fester, the Missing Trader Fraud could tarnish Singapore’s reputation and undermine public trust.
IRAS is committed to maintaining a robust and fair taxation system for all, and will not hesitate to take firm actions against any individuals or businesses involved in the Missing Trader Fraud, knowingly or not.
Consequences of Being involved in a Missing Trader Fraud
When the arrangement is detected by IRAS, perpetrators who introduce you to the arrangement will 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, you will be held accountable.
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 part of a Missing Trader Fraud arrangement.
- You will be denied of the input tax on your purported purchases on the grounds that the claims did not meet the requirements under sections 19 and 20 of the GST Act; or under the Knowledge Principle.
- You will have to pay penalties and/or 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 application may be denied or your GST registration status 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.
- You may incur significant time and costs to appeal to the Goods and Services Tax of Board of Review (the "Board") against the Comptroller's decision, and the outcome may not be a favourable one.
Below are the summaries of the Board's findings and grounds of decision on the appeals by two businesses against the Comptroller's decision to deny their input tax claims. The purchases and sales transactions, as well as business arrangements carried out by the two businesses exhibited the typical traits of an MTF arrangement. These appeals were dismissed by the Board and costs orders were made against the businesses. One of the businesses decided to appeal further to the General Division of the High Court (the "High Court"), and had its appeal dismissed by the High Court.
THM International Import & Export Pte Ltd v The Comptroller of Goods and Services Tax [2024] SGHC 97;
GHY v The Comptroller of Goods and Services Tax [2023] SGGST 1
The taxpayer claimed input tax of S$1,341,557 on the purchase of "Osperia" micro SD cards and flash drives (the "Goods") from [K] in its GST returns for the accounting period of 1 April 2016 to 31 August 2016 (the "Relevant Period"). Based on the Comptroller's audit, the purported supply chain was as follows:
The purported business arrangement and transactions exhibited several red flags. The Comptroller withheld the input tax refunds for the Relevant Period and carried out a detailed audit. Eventually, the Comptroller denied the input tax claims on the basis that the Comptroller was not satisfied that there had been a supply and that these had not been genuine transactions.
The Board dismissed the taxpayer's appeal against the Comptroller's decision. The Board's judgement (as upheld by the General Division of the High Court) is summarised as follows:
(a) The onus is on the taxpayer to prove that the Comptroller's decision was wrong.
(b) The evidence provided by the taxpayer were: (i) documentary evidence purportedly showing the receipt and on-sale of the Goods; (ii) oral testimony from representatives of the taxpayer and [K] that the Goods had been supplied; and (iii) photographs of items that looked like the Goods.
(c) However, all this evidence was not sufficient as the Board agreed with the Comptroller that the following red flags cast serious doubt on the veracity of the transactions:
(i) The sudden and anomalous surge in both the volume of transactions and value of the tax claims over the Relevant Period.
(ii) The inability to trace the goods to the purported manufacturing source or the supplier which sold the products to [K].
(iii) The inexplicable reason why Osperia products were not known or traded in the market despite the high transaction volumes involved in the present case, as well as the dubious nature of the "Osperia" website.
(iv) The lack of a business rationale behind the transactions. The Board was of the view that the commercial arrangements involved were truly bizarre and incredulous. It was a deal which was too good to be true, namely, a risk-free arrangement where the taxpayer would earn a marked-up profit as a middleman without doing any more than to serve as a mailbox for the claiming of input tax. It beggared belief why [K] did not cut out the middleman and deal directly with the overseas customers.
(d) The Board also observed that had the transactions been genuine, the taxpayer would have been able to provide further proof to close the doubts raised; but it did not do so.
(e) The Comptroller did not have to prove the existence of a missing trader fraud scheme or any other attempt to defraud the collection of public revenue to succeed in the appeal.
The taxpayer was ordered to pay legal costs to the Comptroller.
Read the judgement of the Board on Singapore Law Watch and the judgement of the High Court on Singapore Courts.
GIG v The Comptroller of Goods and Services Tax [2023] SGGST 2
The taxpayer claimed input tax of S$102,288.20 on the purchase of Intel processors from [ZZZ] in its GST F5 return for the accounting period of 1 July 2018 to 30 September 2018 (the "Relevant Period"). Based on the Comptroller's investigations, the supply chain for the purported transactions in question was as follows:
The taxpayer's purported business arrangement and transactions exhibited several red flags which suggest that the taxpayer was involved in a Missing Trader Fraud arrangement. Therefore, the Comptroller withheld the taxpayer's GST input tax refunds for the Relevant Period and carried out a detailed audit and investigation. Eventually, the Comptroller denied the taxpayer's input tax claims on the basis that it is doubtful that the taxpayer's purported business of trading in the subject goods entailed genuine business transactions. The taxpayer filed an appeal to the Board to dispute the Comptroller's decision.
The Board dismissed the taxpayer's appeal and ordered the taxpayer to pay legal costs of $64,000 to the Comptroller. The Board held that the taxpayer had failed to discharge its burden to prove that there were indeed supplies of the Intel processors made in the course or furtherance of a business carried on by the taxpayer, having regard to the following:
(a) There was little evidence (apart from bare assertions) to show that the taxpayer's transactions were genuinely made in the course or furtherance of a business. The taxpayer failed to provide any real details of its purported transactions with its alleged supplier [ZZZ] and customers [TTT] and [HHH].
(b) The taxpayer did not adduce documentary evidence in support of its position that it was approached by [TTT] or [HHH] and that negotiations over price occurred even though such evidence must be available to the taxpayer.
(c) The absence of any evidence on the taxpayer's part was troubling considering the speed at which the purported transactions took place (i.e. the five transactions over the course of 11 days, with each transaction involving back-to-back trades that were all completed from start to end on the same day).
(d) There was contemporaneous evidence showing that the transactions were all pre-arranged from the taxpayer's customers to the taxpayer and from the taxpayer to its supplier [ZZZ]. The taxpayer's director conceded that the transactions were all pre-arranged by [ZZZ] for the purpose of the financing of GST and the taxpayer's profit margin was determined by [ZZZ]'s director. The taxpayer did not appear to provide any real value in this series of back-to-back transactions to justify its claims that these were legitimate transactions, especially when these transactions were pre-arranged.
(e) The taxpayer's alleged customers and its alleged supplier ([ZZZ] and its own supplier, [DDD]) were all controlled by one Mr [E]. Hence, Mr [E] was basically arranging for the sale and purchase of Intel processors from companies that he controlled to other companies that he controlled through the taxpayer, as an intermediary. This arrangement begs the question of why this would be done if these transactions were genuine business transactions, and the lack of any meaningful response suggests that it could not have been done for legitimate purposes.
(f) The fact that (a) the taxpayer had failed to track stock, track serial numbers and perform hardware testing and other activities, (b) the processors in question were all second-hand and (c) the models stated on the invoices of the taxpayer's suppliers were arguably not consistent with the models found on the Intel website, all cast further doubt on whether the Intel processors even existed to begin with.
The Board also observed that the taxpayer ought to have taken better steps to protect itself given the various red flags raised instead of proceeding simply because there was a commercial profit to be made as an intermediary.
Read the full written grounds of decision by the Board on Singapore Law Watch.
8. IRAS takes strong enforcement actions against traders and any intermediaries found to be involved in a GST fraud.
- MTF masterminds, co-conspirators and syndicate members who participate in MTF arrangements will be liable to an imprisonment of up to 10 years and/or fine of up to $500,000 upon conviction.
- Current or former sole-proprietors, partners or directors of business entities that are used in MTF arrangements will be liable to an imprisonment of up to 12 months and/or a fine of up to $50,000 upon conviction.
To avoid the above consequences and to protect yourselves, we advise you to be alert and avoid participating in any arrangement that is organised with the intention to defraud GST, knowingly or not.
The Knowledge Principle
From 1 Jan 2021, you will not be entitled to any input tax on any purchase that 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 other 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:
- The circumstances connected with the supply made to you or by you carried a reasonable risk that the supply may be part of such an arrangement; and
- You did not take reasonable steps to ensure whether the supply was a part of such an arrangement; or
- You took reasonable steps but
1. concluded that the supply was not part of such arrangement and the conclusion is not one that a reasonable person would have made;
2. were unable to conclude that the supply was not a part of such arrangement;
3. did not make any conclusion as to whether the supply was or was not 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.
The Knowledge Principle applies to businesses in all industries.
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:
Pillar 1: Be wary if a deal is too good to be true - Assess risk indicators associated with your transactions
| Legitimacy of your immediate customers and suppliers | Commercial viability of the business arrangement | Commercial viability of the payment arrangement | Authenticity of goods/services transacted |
|---|---|---|---|
|
|
|
|
Pillar 2: Know your customers/supplier - Carry out due diligence checks for new business arrangements
| Verify legitimacy of immediate parties you transact with | Verify commerciality of business arrangement | Verify commerciality of payment arrangement | Verify authenticity of the goods/services transacted |
|---|---|---|---|
|
|
|
|
Pillar 3: Take active steps - Respond to assessed risks and results of due diligence checks in Pillars 1 and 2
| 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.
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" (675KB, PDF).
Reporting of Malpractices
If you have been approached to participate in any suspicious arrangements, or are aware of or suspect any malpractices, we urge you to step forward and report them via this form.
A reward based on 15% of the tax recovered, capped at $100,000 would be given, if requested, and when the information and/or documents you provided lead to a recovery of tax that would otherwise have been lost.
Please refer to Reporting Tax Evasion or Fraud for more details.