The Inland Revenue Authority of Singapore (IRAS) continues to emphasise the risks associated with Missing Trader Fraud (MTF). Businesses claiming GST input tax may face denial of claims, penalties, and interest where suppliers fail to report or remit output tax, even if the purchaser acted in good faith.
What is Missing Trader Fraud?
Missing Trader Fraud typically occurs when a supplier:
Charges GST on taxable supplies;
Fails to report or remit the corresponding output tax to IRAS; and
Becomes uncontactable or ceases operations.
IRAS may disallow input tax claims where it determines that the purchaser knew or ought reasonably to have known that the transaction was linked to fraudulent activity.
Further information on IRAS’ approach to audits and investigations can be found here:
IRAS – Audits and Investigations on Missing Trader Fraud
IRAS’ Knowledge Principle
Under the Knowledge Principle, input tax may be denied if a business:
Had actual knowledge of the fraud; or
Did not take reasonable steps and therefore should have known of the risk.
The absence of intent to participate does not automatically protect a business. IRAS’ assessment focuses on whether reasonable due diligence was performed.
IRAS’ Three-Pillar Due Diligence Framework
IRAS has published an e-Tax Guide, “Due Diligence Checks to Avoid Being Involved in Missing Trader Fraud”, providing guidance for managing MTF risks:
e-Tax Guide – Due Diligence Checks
The framework comprises three pillars:
Pillar 1: Identify and Assess Risk Indicators
Key risk indicators include:
Pricing significantly below market norms;
Newly incorporated or low-substance suppliers;
Unusual transaction structures or payment arrangements;
Transactions lacking clear commercial rationale.
Pillar 2: Perform Due Diligence Checks
Businesses should carry out reasonable checks and document them, including:
Verification of the supplier’s GST registration status;
Assessment of the supplier’s business activities and operational presence;
Review of contractual terms and supporting documents;
Validation of payment flows and bank account ownership.
Pillar 3: Respond to Identified Risks
Where risks are identified, appropriate follow-up is required:
Obtain clarifications or supporting evidence from the supplier;
Escalate matters internally;
Refrain from proceeding if risks cannot be adequately mitigated.
Merely identifying risks without taking action may be insufficient to protect input tax claims.
Potential Consequences of Non-Compliance
Where due diligence is not performed to a reasonable standard, IRAS may:
Disallow GST input tax claims;
Impose penalties and late payment interest;
Expand the scope of audits or investigations.
These consequences may arise even where goods or services were genuinely received and payments were made.
Key Takeaways
GST input tax entitlement is conditional on performing reasonable due diligence.
Robust documentation of checks and risk assessments is essential.
High-risk transactions require enhanced scrutiny and controls.
Businesses should periodically review internal GST procedures and supplier onboarding practices.
Conclusion
Missing Trader Fraud remains a priority area for IRAS audits. Businesses are expected to adopt structured due diligence procedures, assess risk indicators, and take appropriate action to protect input tax claims.