VAT carousel fraud

A common form of fraud is the ‘VAT carousel’. According to a report from the European Court of Auditors, the member states of the European Union annually lose 40 to 60 billion euros to this form of internationally organized fraud.

How does VAT carousel fraud work?

Carousel fraud takes many forms. In the most commonly detected variant of carousel fraud, a supplier based in member state 1 (the ‘straw man’ company) supplies (VAT exempt) goods to a second company – the ‘buffer’ – based in member state 2. This ‘buffer’ then misuses the consignment of VAT-exempt goods and resells the same products on the national market of member state 2 at highly competitive prices. The ‘buffer’ can do this because he charges VAT to the customer but does not pay it to the tax authorities; he thereby increases his profit margin. The ‘buffer’ subsequently disappears without a trace, making it impossible to collect the tax in the state where the goods or services are purchased. A schematic diagram of VAT carousel fraud is shown adjacently.

Was aware or should have been aware of fraud

Because VAT carousel fraud is difficult to combat and extremely lucrative, the government long ago stopped targeting only the persons organizing the fraud. Bona fide businesses which have bought goods from a ‘buffer’ are also dealt with severely. If you were aware or should have been aware that the business you were dealing with was part of a fraudulent setup, then you are also part of the fraud, according to the tax authorities’ reasoning. As as consequence, the tax authorities demand the return of the VAT that you deducted for these goods and, in many cases, imposes a fine because you ‘should have known better’.

Expert assistance is essential

If you are accused of participating in VAT carousel fraud and wish to defend yourself, expert assistance from a tax lawyer is essential. Jaeger’s lawyers have years of experience in refuting suspicions of fraud.

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