EU law enforcement have bust a multimillion Euro VAT evasion scam. The scam involved a syndicate that used a series of shell companies to fraudulently claim goods located in EU member state Spain had been delivered to companies located in other EU countries. Authorities say the scam cost Spain €26 million in lost VAT revenue.
The scheme is an example of ‘carousel fraud’ criminal activity. Organized crime groups fraudulently claim that goods are moved across various EU states. A series of shell companies are used to facilitate the fake claims. One of the shell corporations ultimately claims back the VAT supposedly owed.
In reality, the trades took place in just one EU country (in this case, Spain) and were thus subject to European VAT.
Coordinated carousel fraud busting
The crime fighting operation was coordinated by multiple national law enforcement agencies and supported by Europol and Eurojust in order to stop the cross border vat fraud.
According to the OCCRP, carousel fraud schemes cost EU countries billions each year. The schemes involve complex accounting procedures that exploit European Commission VAT policy encouraging trade. The scheme is a variety of missing trader fraud.
Closing loopholes
The prevalence of VAT fraud means that authorities may need to adjust VAT rules and regulations. For instance, the UK recently altered the VAT reverse charge mechanism for the construction industry. The move was aimed at reducing ‘missing trader’ fraud by shifting contractors’ VAT responsibility.
At the same time, the tightened regulations have potentially negative cash flow consequences for subcontractors. As so often, the case illustrates the tension between combating fraud and facilitating business operations.
Digital anti-fraud measures
The move to digital VAT compliance is partly a response to value added tax evasion. Systems such as Belgium’s TNA are designed to carefully analyze masses of data and identify suspicious patterns.
Of course, while new technologies make VAT evasion more difficult, no doubt criminals are scrambling to adapt.
And that means that if there’s one consistent, it’s change. As regulators update tax laws to meet modern challenges, legitimate businesses need to ensure they keep up as the rules change to ensure they get their value added tax refund without problems.