In order to shed light on so-called fraud 'carousels', the German non-profit Correctiv editorial team has launched the 'Grand Theft Europe' project, which brings together 35 media organisations from 28 EU Member States, Norway and Switzerland. On Tuesday 7 May, the consortium published several reports revealing that 50 billion euros are misappropriated each year by criminals who commit value-added tax (VAT) fraud. For them, it is the “scam of the century”.
Carousel fraud is VAT fraud involving multiple companies established in at least two EU Member States. The fraud consists in improperly obtaining the deduction or refund of VAT relating to an intra-Community delivery of goods when this VAT has not been paid to the Treasury.
The survey shows that these systems are particularly active in Romania, Greece, Italy, France, Belgium and Malta.
According to a survey conducted by the Tijd and published by L'Écho, losses in Belgium more than doubled last year to 44.83 million euros. The country is reported to have lost €405 million over the last ten years as a result of this fraud. The worst year was 2009, with more than 93 million euros diverted.
According to Libération, a peak was recorded in France in 2009 as well, with CO2 fraud, carbon allowances traded via an exchange that was 40% owned by the Caisse des dépôts et consignations. In just eight months, the scam cost the French government at least €1.6 billion, according to the French daily.
Many sectors are affected, but the most affected remain those related to electronics, telephones and computer chips, according to the European survey.
These frauds finance organised crime and sometimes also terrorism. In particular, El Confidencial showed that a Spanish jihadist cell had recovered €8 million to finance its activities through a VAT fraud carousel on food products such as chicken, cheese and chocolate.
How is such large scale fraud made possible? Through persistent loopholes in VAT systems, according to the consortium, and through a system of international cooperation that is far from effective. The Shift, for example, highlights the lack of resources and staff for Maltese regulatory authorities, making Malta a “prime location” for such fraud.
“The lack of political will in most EU Member States also makes life hard for VAT fraud investigators. Inter-agency rivalry between law enforcement bodies and mistrust between Member States outweigh the multi-billion losses, it appears”, says Correctiv.
Reacting to the investigation on Twitter, the European Commissioner for Taxation, Pierre Moscovici, was not surprised. “The European Commission has had the solution to put an end to this type of VAT fraud on the finance ministers’ agenda for two years. The loss of revenue for our public treasuries is huge, and it is high time to move forward”, he said.
In 2017, the European Commission proposed a definitive VAT regime for the taxation of trade between Member States (see EUROPE 11876/15). In concrete terms, it proposes to extend the tax rules whereby the supplier of goods collects the VAT to include cross-border transactions as well. This transition to the principle of taxation in the Member State of destination would allow Member States to better combat fraud carousels.
Under negotiation in the EU Council, the dossier has not made much progress. Germany is not in favour, but the other Member States have not, on the whole, shown much enthusiasm either.
See the survey: https://bit.ly/2VmzDtC. (Original version in French by Marion Fontana)