VAT Fraud

1. VAT Fraud

2. VAT = tax easy to collect VAT = tax easy to control V A T

3. Fractional paymentVAT rate 20% 12.000 € (+VAT) 15.000 € (+VAT) 10.000 € (+VAT) Wholesaler Trader Consumer Factory 400.- € (2.400.- -2.000.-) 600.- € (3.000.- -2.400.-) 2.000.- € Tax authority

4. V A T VAT = tax easy to fraud Estimation: 100 billions € / per year

5. Fractional payment 10.000 € (+VAT) 12.000 € (exempt) 15.000 € (+VAT) Wholesaler Trader Consumer Factory refund 2.100.- € (0.- -2.100.-) 2.250.- € (2.250.- - 0.-) 2.100.- € Tax authority MS 1 Tax authority MS 2

6. Until the abolition of the customs controls inside the European Union (1993), the tax auditors were confronted with traditional frauds. The taxpayers are known compliant traders. They have a real economic activity and try only to reduce the amount of taxes they have to pay. Traditional frauds

7. Since 1993, Member States have been confronted with different kinds of organised frauds in the VAT area. When people speak about VAT fraud, at least organised VAT fraud, they focus on the carousel fraud. Organised Frauds (VAT)

8. Basic form Company A Conduit company Zero-rated supplies Company B Missing trader Invoices with VAT Company C Broker Company D Buffer

9. Carousel fraud : services Company A Conduit company Zero-rated supplies of services Reverse charge Company B Missing trader Invoices with VAT Company C Broker Company D Buffer

10. Different techniques Broker, MT et Cc Broker, MT et Cc BELGIUM GERMANY Broker Cc MT Broker Cc MT Broker Buffer Ghost company Broker Buffer Broker MT Buffer LUXEMBOURG

11. The claims for VAT refund (in the same fraud circuit) are made by several brokers (companies). The aim is evident: divide the risk of detection by sharing the VAT refunds. Companies without any activities and without negative tax history are taken of by fraudsters or even by unknown (straw-men) dummies. Techniques

12. The initial purpose of the company is maintained in order to hide the real activity in a risky business field (cars, mobile phones, electronic devices …), for example: the fraudsters take over a company having stopped the jewellery trade in order to begin a car trade. The companies often change (transfer) their office in order to avoid the control of the activity by the local tax offices. The fraudsters play with the territorial competence of the local tax offices. Techniques

13. Creation of several new companies (stock companies, companies with limited liability …). As soon as one missing trader is detected, it’s replaced by another company, which takes over the place of the missing trader whose VAT number has been cancelled. Insertion of buffers in the scheme of the carousel fraud. They have 2 reasons to do so, first of all, the fraud chain is less clear, there is no direct connection between the missing trader and the broker and finally, often, the deny of input-tax will not have any success because the buffer is only an intermediary company which has no money. Techniques

14. Normal and compliant taxpayers with a real trade activity take part in the carousel fraud. They pay the VAT to a buffer or a missing trader and make zero-rated, intra-Community supplies. This alternative has two advantages : By multiplying the involved companies and by dividing the deduction of VAT charged by the missing traders, the data-processing triggers of the tax authorities don’t react anymore or not quick enough. The “normal” taxpayers don’t claim for VAT refund but pay less VAT resulting from their real and normal trade activities. Techniques

15. But, there are other schemes of fraud. The imagination of the fraudster has no limits. Therefore, the tax authorities must also leave the routine (it must change their procedures). Contrary to the carousel fraud, their aim isn’t to get a refund of VAT, but to have a transaction that is not charged with VAT (at least partially not charged). Unfair competition Organised Frauds (VAT)

16. The fraudsters use the rules, the principles of the recast text Council Directive 2006/112/CE and especially the special regimes, like the profit margin regime, the flat rate compensation regime for farmers or special measures for derogation from the provisions of the 6th Directive (article 27) – recast text (article 395) in order to construct their fraud schemes. Therefore, it’s important to understand the economic transactions and to know the rules of the Sixth Directive – of the recast text, but also all the special measures taken in the different Member States under Article 27 (Article 395). Organised Frauds (VAT)

17. In conclusion, it’s important to tackle organised frauds as soon as possible to stop the fraud and to avoid substantial losses in VAT receipts. Successful recovery in organised frauds is very difficult. The early detection of the fraudsters allows at least to stop the fraud. Conclusion

18. Recapitulative statements, Eurofisc, administrative cooperation, risk analysis, exchange of best practices, … important elements for fraud indications Control activities time consuming Conclusion

19. Improvement of the exchange of information Reduction of time frames Recapitulative statements for services Administrative cooperation, EUROFISC, … Joint and several liability Amending the right of deduction rules Legal changes to the current VAT system Generalised optional reverse charge system (with a minimum threshold) Taxation of the IC supplies DiscussionsAnti-Tax Fraud Strategy

20. optional generalized reverse charge system targeted reverse charge procedure DiscussionsAnti-Tax Fraud Strategy

21. Reverse charge procedureVAT rate 20% 15.000 € (+VAT) 12.000 € (Reversecharge) Wholesaler Trader 10.000 € (Reverse charge) Consumer Factory 0.- € 3.000.- € 0.- € Tax authority

22. Thank you