VALUE ADDED TAX EVASION: IMPLEMENTATION SCHEMES AND DOCUMENTATION

Abstract

The value added tax is an important tax, accounting for about 40% of Ukraine's state budget revenues. The collection of the proper amount of VAT is a constant challenge for the State Tax Service of Ukraine in order to ensure VAT revenues, ensure fair competition between businesses and avoid economic distortions in the domestic market. According to various estimates, shadow VAT transactions amount to UAH 60-90 billion per year, which is significant, especially in the context of a 35% contraction of Ukraine's economy as a result of the war. That is why the study of value added tax evasion schemes and documents that will allow law enforcement to detect them is particularly relevant and timely. By value added tax evasion, the authors mean a generalized characterization of the methods of reducing tax payments, in which VAT payers deliberately avoid paying them and/or reduce their tax liabilities in violation of the law. An analysis of the literature has made it possible to classify all shadow transactions with value added tax into two groups depending on the environment in which they are carried out: shadow transactions in the national market and international shadow transactions. The most common schemes for shadow transactions in the domestic market include: underreporting of sales; refusal to register; failure to transfer VAT to the budget; falsified applications for tax credits or refunds. The most commonly used international shadow VAT transactions are schemes of shadow transactions with a company that is a "missing trader". This article describes three schemes of international shadow transactions with a missing trader: a simple scheme, a carousel scheme and a "counter trade" scheme. The participants in the scheme and the jurisdictions that incur losses are identified. Based on the results, it is determined that it is the combination of instruments that allow maximizing budget revenues by minimizing losses from shadow transactions that forms an effective state policy on legalization of shadow VAT transactions.