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Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
VAT
Fraud
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
• VAT = tax easy to collect
• VAT = tax easy to control
V A T
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Fractional payment VAT rate 20%
Factory
Trader
Consumer
Tax authority
10.000 € (+VAT)
2.000.- €
12.000 € (+VAT)
400.- €(2.400.- -2.000.-)
Wholesaler15.000 € (+VAT)
600.- €(3.000.- -2.400.-)
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
V A T
VAT = tax easy to fraud
Estimation: 100 billions € / per year
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Fractional payment
Factory
Trader
Consumer
Tax authority
MS 1
10.000 € (+VAT)
2.100.- €
12.000 €
(exempt)
refund2.100.- €(0.- -2.100.-)
Wholesaler15.000 € (+VAT)
2.250.- €(2.250.- - 0.-)
Tax authority
MS 2
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Traditional frauds• 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Organised Frauds (VAT)
• 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Company D Buffer
Company CBroker
Company A Conduit company
Invoices with VAT
Zero-rated supplies
Company BMissing trader
Basic form
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Company D Buffer
Company CBroker
Company A Conduit
company
Invoices with VAT
Zero-rated supplies of servicesReverse charge
Company BMissing trader
Carousel fraud : services
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
MT
MT
Ghost company
Buffer
MT
BrokerCc
BrokerBuffer
BufferBroker
BrokerCc
Broker
BELGIUMBELGIUM
GGEERRMMAANNYY
LUXEMBOURGLUXEMBOURG
Broker, MT et Cc
Broker, MT et Cc
Different techniques
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Techniques
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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Techniques 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Techniques 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Techniques 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Organised Frauds (VAT)• 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
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Organised Frauds (VAT) 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).
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Conclusion 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.
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Conclusion
• Recapitulative statements, Eurofisc, administrative cooperation, risk analysis, exchange of best practices, … – important elements for fraud indications
• Control activities– time consuming
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
DiscussionsAnti-Tax Fraud Strategy
• 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
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
DiscussionsAnti-Tax Fraud Strategy
• optional generalized reverse charge system
• targeted reverse charge procedure
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud
Reverse charge procedureVAT rate 20%
Factory
Trader
Consumer
Tax authority
10.000 € (Reverse charge)
0.- €
12.000 € (Reversecharge)
0.- €
Wholesaler15.000 € (+VAT)
3.000.- €
Fraud
2006/ 112/EC
VAT fraud – Luxembourg delegation 2012
Fight against fraud • Thank you