fraud 2006/ 112/ec vat fraud – luxembourg delegation 2012 fight against fraud vat fraud

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Fraud 2006/ 112/EC VAT fraud – Luxembourg delegation 2012 Fight against fraud VAT Fraud

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Page 1: 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

Fraud

Page 2: 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

Page 3: 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

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.-)

Page 4: 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

V A T

VAT = tax easy to fraud

Estimation: 100 billions € / per year

Page 5: 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

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

Page 6: 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

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.

Page 7: 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

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.

Page 8: 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

Company D Buffer

Company CBroker

Company A Conduit company

Invoices with VAT

Zero-rated supplies

Company BMissing trader

Basic form

Page 9: 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

Company D Buffer

Company CBroker

Company A Conduit

company

Invoices with VAT

Zero-rated supplies of servicesReverse charge

Company BMissing trader

Carousel fraud : services

Page 10: 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

MT

MT

Ghost company

Buffer

MT

BrokerCc

BrokerBuffer

BufferBroker

BrokerCc

Broker

BELGIUMBELGIUM

GGEERRMMAANNYY

LUXEMBOURGLUXEMBOURG

Broker, MT et Cc

Broker, MT et Cc

Different techniques

Page 11: 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

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.

Page 12: 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

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.

Page 13: 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

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.

Page 14: 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

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.

Page 15: 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

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

Page 16: 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

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).

Page 17: Fraud 2006/ 112/EC VAT fraud – Luxembourg delegation 2012 Fight against fraud VAT Fraud

Fraud

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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.

Page 18: Fraud 2006/ 112/EC VAT fraud – Luxembourg delegation 2012 Fight against fraud VAT Fraud

Fraud

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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

Page 19: 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

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

Page 20: 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

DiscussionsAnti-Tax Fraud Strategy

• optional generalized reverse charge system

• targeted reverse charge procedure

Page 21: 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

Reverse charge procedureVAT rate 20%

Factory

Trader

Consumer

Tax authority

10.000 € (Reverse charge)

0.- €

12.000 € (Reversecharge)

0.- €

Wholesaler15.000 € (+VAT)

3.000.- €

Page 22: 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 • Thank you