Joint follow-up report Intra-Community VAT fraud

In March 2009 the Supreme Audit Institutions (SAIs) from Belgium, Germany and the Netherlands carried out a joint investigation to contribute to combating intra-Community VAT fraud. In 2011 the three participating SAIs decided to evaluate what action had been taken on the basis of the recommendations in the original report. This follow-up audit resulted in three separate reports, one for each country, and a joint overarching report. The observations in the joint report indicate that in some areas progress has been made on tackling intra-Community VAT-fraud. However in other areas the situation has not changed significantly since the 2009 joint report.

Conclusions

Progress is visible for example in the tax authorities’ approach to inactive traders with valid VAT identification numbers. Investigations of these cases start earlier and VAT numbers are withdrawn if necessary. Tax authorities also explore ways of improving risk analysis and keeping track of fraud patterns. The speeding up of VIES processing, pursuant to EU legislation, helps to detect fraud signals earlier and consequently to stop losses earlier. The establishment of Eurofisc is also considered to be a positive development, because it promotes cooperation between fraud units in all EU Member States.

There are also areas where we do not observe significant positive developments. For example, more attention still needs to be paid to preventing abuse of existing VAT numbers by transferring company ownership. In many cases fraudsters use these transfers as an alternative to establishing a new company. Since 2009, EU standards for registration and deregistration have not been changed to give tax authorities more scope to act in cases where fraud (or intended fraud) is suspected.

Although new EU rules introduced monthly recapitulative statements, this did not reduce the problems with matching VIES data. An important precondition – that ‘transactions should be declared for the same tax period by both the supplier and the purchaser or the customer’ – has not been fulfilled. This is one of the obstacles to the tax authorities’ improving their matching procedures. Harmonisation of chargeability rules is still an issue.

The timely handling of information requests by using SCAC forms  remains a problem. Systematic evaluations of the effectiveness of this type of information exchange to detect fraud have not been conducted.

The information available to the tax authorities indicates a reduction in the losses due to carousel fraud in Belgium and in the Netherlands. This is partly due to earlier detection of fraud schemes through risk analysis and international exchange of risk signals between fraud units of EU Member States. As in 2009, the German federal tax administration was not able to provide quantitative information about carousel fraud losses, because this is the responsibility of the Länder.

Recommendations

Looking at the future, carousel fraud will clearly remain a threat as long as the current ‘temporary’ EU VAT system is in place. This means that tax authorities need to devote constant attention to this type of fraud. Relaxing the efforts to tackle intra-Community fraud could easily result in increased VAT losses, because of the late detection of carousels. Systematic evaluation of the effectiveness of anti-fraud measures and continuous monitoring of carousel fraud losses and new developments and trends in fraudulent behaviour are essential to be able to focus on the most valuable instruments to tackle this kind of fraud.

See also