Carousel fraud is an increasing problem within the EU; in its simplest form, a company is set up to import goods from other EU member states – initially high value such as aluminium or other metals, but many other portable goods may also be used and the likelihood is that fraudsters will also target services where control problems are even more difficult.
Goods are supposedly bought ‘VAT free’ from a member state, then sold on with VAT added. The company then disappears without accounting to the tax authority for the VAT charged, and pockets the VAT due.
The ‘carousel’ part comes in when the same fraudsters continually re-import and export the same goods through a number of member states, reclaiming the VAT each time because the goods do not attract VAT when they cross an EU border. In many cases, the goods themselves don’t even physically exist; the transaction is based entirely on a fraudulent paper-trail.
Any business in a supply chain of goods which have been the object of fraud can be held liable to pay the VAT which is unaccounted for if the relevant person “knew” or “had reasonable grounds to suspect” that the VAT on the supply or on any previous or subsequent supply had been unpaid.
A business will be presumed to have “reasonable grounds to suspect” if it has purchased goods for less than their lowest open market value or the price payable by a previous supplier in the chain.
Heneken recommends checking:
- the legitimacy of customers or suppliers (e.g. their trade history);
- the commercial viability of the transaction (e.g. the existence of a market for the goods);
- the viability of the goods (e.g. the existence and condition of the goods).
Indicators concerning the supplier’s characteristics:
- An invalid intra-community VAT number of the supplier;
- A company engaging in operations that are unrelated to or far removed from its habitual activity;
Indicators concerning the characteristics of the transaction, the agreement and the invoicing:
- A transaction price that is abnormally below the market price;
- No indication of a sales contact or a contact that is difficult to identify
- Canvassing by a business finder or an intermediary looking to establish relationships with unknown suppliers
- A high down payment compared to the total amount invoiced or the absence of an invoice when the invoiced amount is high;
- An invoicing circuit that is different from the delivery circuit.
Indicators concerning payment terms:
- No bank account or bank account abroad;
- Insistence on payment in cash or very quick payment.